0000819050Q2false202012/3100008190502020-01-012020-06-30xbrli:shares00008190502020-08-12iso4217:USD00008190502020-06-3000008190502019-12-31iso4217:USDxbrli:shares00008190502020-04-012020-06-3000008190502019-04-012019-06-3000008190502019-01-012019-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2019-12-310000819050us-gaap:CommonStockMember2019-12-310000819050us-gaap:AdditionalPaidInCapitalMember2019-12-310000819050us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000819050us-gaap:RetainedEarningsMember2019-12-3100008190502020-01-012020-03-310000819050us-gaap:CommonStockMember2020-01-012020-03-310000819050us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310000819050us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310000819050us-gaap:RetainedEarningsMember2020-01-012020-03-310000819050us-gaap:RedeemableConvertiblePreferredStockMember2020-03-310000819050us-gaap:CommonStockMember2020-03-310000819050us-gaap:AdditionalPaidInCapitalMember2020-03-310000819050us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310000819050us-gaap:RetainedEarningsMember2020-03-3100008190502020-03-310000819050us-gaap:CommonStockMember2020-04-012020-06-300000819050us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300000819050us-gaap:RetainedEarningsMember2020-04-012020-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2020-06-300000819050us-gaap:CommonStockMember2020-06-300000819050us-gaap:AdditionalPaidInCapitalMember2020-06-300000819050us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300000819050us-gaap:RetainedEarningsMember2020-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2018-12-310000819050us-gaap:CommonStockMember2018-12-310000819050us-gaap:AdditionalPaidInCapitalMember2018-12-310000819050us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310000819050us-gaap:RetainedEarningsMember2018-12-3100008190502018-12-310000819050us-gaap:RedeemableConvertiblePreferredStockMember2019-01-012019-03-310000819050us-gaap:RetainedEarningsMember2019-01-012019-03-3100008190502019-01-012019-03-310000819050us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310000819050us-gaap:RedeemableConvertiblePreferredStockMember2019-03-310000819050us-gaap:CommonStockMember2019-03-310000819050us-gaap:AdditionalPaidInCapitalMember2019-03-310000819050us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310000819050us-gaap:RetainedEarningsMember2019-03-3100008190502019-03-310000819050us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2019-04-012019-06-300000819050us-gaap:RetainedEarningsMember2019-04-012019-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2019-06-300000819050us-gaap:CommonStockMember2019-06-300000819050us-gaap:AdditionalPaidInCapitalMember2019-06-300000819050us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300000819050us-gaap:RetainedEarningsMember2019-06-3000008190502019-06-30bbi:segment0000819050us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300000819050us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310000819050us-gaap:CollaborativeArrangementMember2015-03-012015-03-310000819050us-gaap:CollaborativeArrangementMember2015-03-310000819050us-gaap:CollaborativeArrangementMember2018-05-012018-05-31xbrli:pure0000819050us-gaap:CollaborativeArrangementMember2020-01-012020-06-300000819050us-gaap:CollaborativeArrangementMember2020-04-012020-06-300000819050us-gaap:CollaborativeArrangementMember2019-04-012019-06-300000819050us-gaap:CollaborativeArrangementMember2019-01-012019-06-300000819050us-gaap:CollaborativeArrangementMember2020-06-300000819050us-gaap:CollaborativeArrangementMember2019-12-310000819050us-gaap:WarrantMember2020-01-012020-06-300000819050us-gaap:WarrantMember2020-04-012020-06-300000819050us-gaap:WarrantMember2019-01-012019-06-300000819050us-gaap:WarrantMember2019-04-012019-06-300000819050us-gaap:EmployeeStockOptionMember2020-04-012020-06-300000819050us-gaap:EmployeeStockOptionMember2020-01-012020-06-300000819050us-gaap:EmployeeStockOptionMember2019-01-012019-06-300000819050us-gaap:EmployeeStockOptionMember2019-04-012019-06-300000819050us-gaap:RestrictedStockUnitsRSUMember2020-04-012020-06-300000819050us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-06-300000819050us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-06-300000819050us-gaap:RestrictedStockUnitsRSUMember2019-04-012019-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2020-01-012020-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2020-04-012020-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2019-04-012019-06-300000819050us-gaap:RedeemableConvertiblePreferredStockMember2019-01-012019-06-300000819050bbi:RedeemableConvertiblePreferredStockWarrantsMember2020-04-012020-06-300000819050bbi:RedeemableConvertiblePreferredStockWarrantsMember2020-01-012020-06-300000819050bbi:RedeemableConvertiblePreferredStockWarrantsMember2019-01-012019-06-300000819050bbi:RedeemableConvertiblePreferredStockWarrantsMember2019-04-012019-06-300000819050us-gaap:ConvertibleNotesPayableMember2019-03-310000819050us-gaap:ConvertibleNotesPayableMember2019-03-012019-03-310000819050us-gaap:ConvertibleNotesPayableMember2019-03-012019-08-310000819050bbi:OfficersAndDirectorsMemberus-gaap:ConvertibleNotesPayableMember2019-03-012019-08-310000819050us-gaap:CommonStockMemberus-gaap:ConvertibleNotesPayableMember2019-08-312019-08-310000819050us-gaap:ConvertibleNotesPayableMember2019-08-310000819050us-gaap:ConvertibleNotesPayableMember2020-01-012020-06-300000819050us-gaap:ConvertibleNotesPayableMember2019-04-012019-06-300000819050us-gaap:ConvertibleNotesPayableMember2019-01-012019-06-300000819050us-gaap:ConvertibleNotesPayableMember2020-06-300000819050us-gaap:NotesPayableOtherPayablesMember2016-02-180000819050bbi:InterestRateOptionOneMemberus-gaap:NotesPayableOtherPayablesMember2016-02-180000819050bbi:InterestRateOptionTwoMemberus-gaap:PrimeRateMemberus-gaap:NotesPayableOtherPayablesMember2016-02-182016-02-180000819050bbi:InterestRateOptionTwoMemberus-gaap:NotesPayableOtherPayablesMember2016-02-180000819050us-gaap:NotesPayableOtherPayablesMember2016-02-182018-07-310000819050bbi:HerculesCapitalWarrantsMember2018-06-022018-06-020000819050bbi:HerculesCapitalWarrantsMember2018-06-0200008190502019-09-032019-09-030000819050bbi:PaycheckProtectionProgramMember2020-04-15bbi:renewal_termutr:sqft0000819050bbi:BodorLaboratoriesInc.Member2020-02-172020-02-170000819050bbi:BodorLaboratoriesInc.Member2020-06-012020-06-300000819050bbi:BodorLaboratoriesInc.Member2020-04-012020-06-300000819050bbi:A2020OmnibusPlanMember2020-06-300000819050bbi:CommonStockWarrantsMember2020-06-300000819050bbi:SharebasedPaymentArrangementOptionOutstandingMember2020-06-300000819050us-gaap:EmployeeStockOptionMemberbbi:A2020OmnibusPlanMember2020-06-300000819050us-gaap:SubsequentEventMember2020-07-130000819050us-gaap:SubsequentEventMember2020-07-140000819050us-gaap:SubsequentEventMemberbbi:A2020OmnibusPlanMember2020-07-142020-07-140000819050bbi:CommonStockPublicOfferingMember2020-06-300000819050bbi:CommonStockPublicOfferingMemberbbi:PreFundedWarrantMember2020-06-300000819050bbi:AccompanyingCommonWarrantMemberbbi:CommonStockPublicOfferingMember2020-06-300000819050bbi:PreFundedWarrantMember2020-06-300000819050bbi:CommonStockPublicOfferingMember2020-06-012020-06-3000008190502020-06-012020-06-3000008190502020-04-140000819050bbi:PrivatePlacementOfferingsMember2020-02-170000819050bbi:PrivatePlacementOfferingsMemberus-gaap:SeriesAMember2020-02-170000819050us-gaap:SeriesBMemberbbi:PrivatePlacementOfferingsMember2020-02-170000819050bbi:PrivatePlacementOfferingsMember2020-02-172020-02-170000819050bbi:LincolnParkMember2020-02-170000819050bbi:LincolnParkMemberbbi:PurchaseAgreementMember2020-02-172020-02-170000819050bbi:LincolnParkMemberbbi:PurchaseAgreementMember2020-02-170000819050bbi:LincolnParkMemberbbi:RegularPurchaseMember2020-02-172020-02-170000819050bbi:LincolnParkMemberbbi:RegularPurchaseMember2020-02-170000819050bbi:LincolnParkMember2020-02-172020-02-170000819050us-gaap:EmployeeStockOptionMemberbbi:A2020OmnibusPlanMember2020-04-200000819050us-gaap:EmployeeStockOptionMemberbbi:EquityIncentivePlan2009Member2020-06-300000819050us-gaap:EmployeeStockOptionMemberbbi:VicalStockIncentivePlanMember2020-06-300000819050us-gaap:ResearchAndDevelopmentExpenseMember2020-04-012020-06-300000819050us-gaap:ResearchAndDevelopmentExpenseMember2019-04-012019-06-300000819050us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-06-300000819050us-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-06-300000819050us-gaap:GeneralAndAdministrativeExpenseMember2020-04-012020-06-300000819050us-gaap:GeneralAndAdministrativeExpenseMember2019-04-012019-06-300000819050us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-06-300000819050us-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-06-300000819050us-gaap:SubsequentEventMember2020-07-142020-07-140000819050us-gaap:SubsequentEventMemberbbi:A2020OmnibusPlanMember2020-07-130000819050us-gaap:SubsequentEventMemberbbi:A2020OmnibusPlanMember2020-07-14

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 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: 000-21088
BRICKELL BIOTECH, INC.
(Exact name of registrant as specified in its charter)
Delaware93-0948554
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
5777 Central Avenue, Boulder,CO80301
(Address of principal executive offices)(Zip Code)
(720) 505-4755
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareBBIThe 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 filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of August 12, 2020, there were 27,787,081 shares of the registrant’s common stock outstanding.



BRICKELL BIOTECH, INC.
FORM 10-Q
INDEX

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


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRICKELL BIOTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$21,570  $7,232  
Marketable securities, available-for-sale  4,497  
Prepaid expenses and other current assets5,736  6,240  
Total current assets27,306  17,969  
Property and equipment, net10  16  
Operating lease right-of-use asset114  159  
Total assets$27,430  $18,144  
Liabilities and stockholders equity
Current liabilities:
Accounts payable$566  $2,245  
Accrued liabilities6,261  6,379  
Lease liability, current portion83  78  
Deferred revenue142  1,795  
Note payable, current portion194    
Total current liabilities7,246  10,497  
Lease liability, net of current portion31  73  
Note payable, net of current portion243    
Total liabilities7,520  10,570  
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.01 par value, 50,000,000 shares authorized at June 30, 2020 and December 31, 2019; 26,671,573 and 8,480,968 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
267  85  
Additional paid-in capital113,845  92,497  
Accumulated other comprehensive gain  (28) 
Accumulated deficit(94,202) (84,980) 
Total stockholders’ equity19,910  7,574  
Total liabilities and stockholders’ equity$27,430  $18,144  







See accompanying notes to these condensed consolidated financial statements.
3


BRICKELL BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Collaboration revenue$607  $2,573  $1,653  $6,065  
Operating expenses:
Research and development2,712  4,229  5,376  10,248  
General and administrative3,021  1,323  5,502  3,389  
Total operating expenses5,733  5,552  10,878  13,637  
Loss from operations(5,126) (2,979) (9,225) (7,572) 
Investment and other income, net7  4  3  10  
Interest expense  (660)   (884) 
Change in fair value of derivative liability  (11)   (11) 
Change in fair value of warrant liability  (8)   223  
Net loss(5,119) (3,654) (9,222) (8,234) 
Reduction (accretion) of redeemable convertible preferred stock to redemption value  (163)   10,356  
Net income (loss) attributable to common stockholders$(5,119) $(3,817) $(9,222) $2,122  
Net income (loss) per common share attributable to common stockholders, basic$(0.43) $(6.48) $(0.87) $3.60  
Net loss per common share attributable to common stockholders, diluted$(0.43) $(6.48) $(0.87) $(4.46) 
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, basic11,819,152  589,001  10,595,960  589,001  
Weighted-average shares used to compute net loss per share attributable to common stockholders, diluted11,819,152  589,001  10,595,960  1,845,467  


















See accompanying notes to these condensed consolidated financial statements.
4


BRICKELL BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited, in thousands)

Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Net loss$(5,119) $(3,654) $(9,222) $(8,234) 
Other comprehensive income:
Unrealized gain on available-for-sale marketable securities arising during holding period, net of tax benefit of $0
    28    
Total comprehensive loss$(5,119) $(3,654) $(9,194) $(8,234) 








































See accompanying notes to these condensed consolidated financial statements.
5


BRICKELL BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
(unaudited)

Series A, B, C & C-1 Redeemable
Convertible Preferred Stock
Common StockAdditional
Paid-In-Capital
Accumulated Other Comprehensive Gain (Loss)Accumulated
Deficit
Total
Stockholders’
Equity
SharesCarrying ValueSharesPar Value
Balance, December 31, 2019  $  8,480,968  $85  $92,497  $(28) $(84,980) $7,574  
Issuance of common stock and common stock purchase warrants, net of issuance costs of $10
—  950,000  10  1,980  —  —  1,990  
Issuance of common stock upon exercise of warrants—  221,293  2  13  —  —  15  
Issuance of common stock upon restricted stock unit settlement, net of shares withheld for taxes—  19,643  —  (13) —  —  (13) 
Stock-based compensation—  —  —  403  —  —  403  
Unrealized gain on available-for-sale marketable securities—  —  —  —  28  —  28  
Net loss—  —  —  —  —  (4,103) (4,103) 
Balance, March 31, 2020    9,671,904  97  94,880    (89,083) 5,894  
Issuance of common stock upon exercise of warrants—  —  2,202,863  22  (15) —  —  7  
Issuance of common stock upon restricted stock unit settlement, net of shares withheld for taxes—  —  6,673  —  (4) —  —  (4) 
Common stock and warrants issued, net of issuance costs of $1,443
—  —  14,790,133  148  18,531  —  —  18,679  
Stock-based compensation—  —  —  —  453  —  —  453  
Net loss—  —  —  —  —  —  (5,119) (5,119) 
Balance, June 30, 2020  $  26,671,573  $267  $113,845  $  $(94,202) $19,910  

6


Series A, B, C & C-1 Redeemable
Convertible Preferred Stock
Common StockAdditional
Paid-In-Capital
Accumulated Other Comprehensive Gain (Loss)Accumulated
Deficit
Total
Stockholders’
Deficit
SharesCarrying ValueSharesPar Value
Balance, December 31, 20181,256,466  $58,290  589,001  $6  $  $  $(71,624) $(71,618) 
Reduction of redeemable convertible preferred stock to redemption value(10,519) —  —  —  10,519  10,519  
Stock-based compensation—  —  384  —  —  384  
Net loss—  —  —  —  (4,580) (4,580) 
Balance, March 31, 20191,256,466  47,771  589,001  6  384    (65,685) (65,295) 
Stock based compensation—  —  299  —  —  299  
Accretion of redeemable convertible preferred stock to redemption value163  —  (163) —  —  (163) 
Net loss—  —  —  —  (3,654) (3,654) 
Balance, June 30, 20191,256,466  $47,934  589,001  $6  $520  $  $(69,339) $(68,813) 























See accompanying notes to these condensed consolidated financial statements.
7


BRICKELL BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended
June 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(9,222) $(8,234) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation6  21  
Accretion of discount on marketable securities25    
Change in fair value of derivative liability  11  
Change in fair value of warrant liability  (223) 
Amortization of discounts and financing costs  551  
Stock-based compensation856  683  
Changes in operating assets and liabilities:
Prepaid expenses and other current assets512  (165) 
Accounts payable(1,679) 3,053  
Accrued liabilities(135) 865  
Deferred revenue(1,653) (6,064) 
Net cash used in operating activities(11,290) (9,502) 
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable securities4,500    
Capital expenditures  (4) 
Net cash provided by (used in) investing activities4,500  (4) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock and warrants, net of issuance costs20,669    
Proceeds from the issuance of note payable437    
Proceeds from the exercise of warrants22    
Proceeds from issuance of convertible promissory notes  5,127  
Payments of principal of note payable  (1,609) 
Net cash provided by financing activities21,128  3,518  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS14,338  (5,988) 
CASH AND CASH EQUIVALENTS—BEGINNING7,232  8,067  
CASH AND CASH EQUIVALENTS—ENDING$21,570  $2,079  
Supplement Disclosure of Cash Flow Information:
Interest paid$  $234  
Supplement Disclosure of Non-Cash Investing and Financing Activities:
Reduction of redeemable convertible preferred stock to redemption value$  $(10,376) 
Warrants to purchase common stock issued with convertible promissory notes$  $1,029  
Derivative liability issued with convertible promissory notes$  $996  
Deferred financing costs included in accrued liabilities$  $154  
Accretion of redeemable convertible preferred stock issuance costs$  $20  

See accompanying notes to these condensed consolidated financial statements.
8


BRICKELL BIOTECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

Brickell Biotech, Inc. (the “Company” or “Brickell”) is a clinical-stage pharmaceutical company focused on the development of innovative and differentiated prescription therapeutics for the treatment of debilitating skin diseases. The Company’s pipeline consists of potential novel therapeutics for hyperhidrosis and other prevalent dermatological conditions. The Company’s pivotal Phase 3-ready clinical-stage product candidate, sofpironium bromide, is a proprietary new molecular entity that belongs to a class of medications called anticholinergics. The Company intends to develop sofpironium bromide as a potential best-in-class, self-administered, once daily, topical therapy for the treatment of primary axillary hyperhidrosis. The Company’s operations to date have been limited to business planning, raising capital, developing its pipeline assets (in particular sofpironium bromide), identifying product candidates, and other research and development.

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

The accompanying condensed consolidated financial statements and related notes reflect the historical results of Private Brickell prior to the Merger and of the combined company following the Merger, and do not include the historical results of Vical prior to the completion of the Merger. These financial statements and related notes should be read in conjunction with the audited financial statements for the year ended December 31, 2019, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2020.

Liquidity and Capital Resources

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The Company has incurred significant operating losses and has an accumulated deficit as a result of ongoing efforts to develop product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. For the six months ended June 30, 2020, the Company had a net loss of $9.2 million and net cash used in operating activities of $11.3 million. As of June 30, 2020, the Company had cash and cash equivalents of $21.6 million and an accumulated deficit of $94.2 million.

The Company believes that its cash and cash equivalents as of June 30, 2020 and periodic sales of the Company’s common stock under the Purchase Agreement (see Note 7. “Capital Stock”), are sufficient to fund its operations for at least the next 12 months from the issuance of these condensed consolidated financial statements. However, in order to sell additional shares of common stock under the Purchase Agreement, Lincoln Park Capital Fund, LLC (“Lincoln Park”) will need to purchase shares of common stock from the Company, subject to the conditions under the Purchase Agreement. Further, the Company will be significantly limited in its ability to sell shares of its common stock under the Purchase Agreement, or to utilize its common stock in any other capital raising transaction, if the Company’s stockholders do not approve an increase in the number of authorized shares of common stock of the Company, as further described in Note 7. “Capital Stock” and in Note 9. “Subsequent Events.” The Company expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities. Additional funding will be required in the future to proceed with the Company’s current and proposed research activities, including completing both pivotal U.S. Phase 3 clinical trials of sofpironium bromide.

9


NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Brickell Subsidiary, Inc., and are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and applicable rules and regulations of the SEC for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the Company’s financial information. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020, for any other interim period, or for any other future period. The condensed consolidated balance sheet as of December 31, 2019 has been derived from audited financial statements at that date but does not include all of the information required by US GAAP for complete financial statements. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in one operating segment and, accordingly, no segment disclosures have been presented herein. The Company’s management performed an evaluation of its activities through the date of filing of these financial statements and concluded that there are no subsequent events requiring disclosure, other than as disclosed.

Use of Estimates

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

Risks and Uncertainties

The Company’s business is subject to significant risks common to early-stage companies in the pharmaceutical industry including, but not limited to, the ability to develop appropriate formulations, scale up and produce the compounds; dependence on collaborative parties; uncertainties associated with obtaining and enforcing patents and other intellectual property rights; clinical implementation and success; the lengthy and expensive regulatory approval process; compliance with regulatory and other legal requirements; competition from other products; uncertainty of broad adoption of its approved products, if any, by physicians and patients; significant competition; ability to manage third-party manufacturers, suppliers, contract research organizations, business partners and other alliance management; and obtaining additional financing to fund the Company’s efforts.

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

The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to complete clinical studies and launch and commercialize any product candidates for which it receives regulatory approval. There can be no assurance that such financing will be available or will be at terms acceptable to the Company.

Fair Value Measurements

Fair value is the price that the Company would receive to sell an asset or pay to transfer a liability in a timely transaction with an independent counterparty in the principal market or in the absence of a principal market, the most advantageous market for the asset or liability. A three-tier hierarchy is established to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the
10


assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs), and establishes a classification of fair value measurements for disclosure purposes.

The hierarchy is summarized in the three broad levels listed below:

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

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

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

The following table sets forth the fair value of the Company’s financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
Level 1 (1)
June 30,
2020
December 31, 2019
Assets:
Money market funds$21,570  $7,232  
U.S. treasuries  4,497  
Total$21,570  $11,729  
____________
(1) No assets as of each respective date were identified as Level 2 or 3 based on the three-tier fair value hierarchy. The Company had no financial liabilities measured at fair value on a recurring basis as of each respective date.
Fair Value of Financial Instruments

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

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

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

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

Leases

The Company accounts for leases under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”). Under ASC 842, the Company determines if an arrangement is a lease at inception. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected the practical expedient not to recognize on the balance
11


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

Revenue Recognition

The Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations. At contract inception, the Company assesses the goods or services promised within each contract and assesses whether each promised good or service is distinct and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

To date, the Company’s drug candidates have not been approved for sale by the FDA or any other country’s regulatory authority, and the Company has not generated or recognized any revenue from the sale of products.

In March 2015, the Company entered into a license, development, and commercialization agreement (as amended, the “Kaken Agreement”) with Kaken Pharmaceutical Co., Ltd. (“Kaken”). Under the Kaken Agreement, the Company granted to Kaken an exclusive right to develop, manufacture, and commercialize the Company’s sofpironium bromide compound, a topical anticholinergic, in Japan and certain other Asian countries (the “Territory”). In exchange, Kaken paid the Company an upfront, non-refundable payment of $11.0 million (the “upfront fee”). In addition, the Company was entitled to receive aggregate payments of up to $10.0 million upon the achievement of specified development milestones, and $30.0 million upon the achievement of commercial milestones, as well as tiered royalties based on a percentage of net sales of licensed products in the Territory. The Kaken Agreement further provides that Kaken will be responsible for funding all development and commercial costs for the program in the Territory. Kaken is also required to enter into negotiations with the Company, to supply the Company, at cost, with clinical supplies to perform Phase 3 clinical trials in the United States.

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

Under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), the Company evaluated the terms of the Kaken Agreement, and the transfer of intellectual property and manufacturing rights (the “license”) was identified as the only performance obligation as of the inception of the agreement. The Company concluded that the license for the intellectual property was distinct from its ongoing supply obligations. The Company further determined that the transaction price under the arrangement was comprised of the $11.0 million upfront payment, which was allocated to the license performance obligation. The future potential milestone amounts were not included in the transaction price, as they were all determined to be fully constrained. As part of its evaluation of the development and regulatory milestones constraint, the Company determined that the achievement of such milestones is contingent upon success in future clinical trials and regulatory approvals, each of which is uncertain at this time. The Company will re-evaluate the transaction price each quarter and as uncertain events are resolved or other changes in circumstances occur. Future potential milestone amounts would be recognized as revenue from collaboration arrangements, if unconstrained. The remainder of the
12


arrangement, which largely consisted of both parties incurring costs in their respective territories, provides for the reimbursement of the ongoing supply costs. These costs were representative of a collaboration arrangement outside of the scope of Topic 606 as they do not have the characteristics of a vendor and customer relationship. Reimbursable program costs are recognized proportionately with the delivery of drug substance and are accounted for as reductions to research and development expense and are excluded from the transaction price.

In May 2018, the Company entered into an amendment to the Kaken Agreement, pursuant to which the Company received an upfront non-refundable fee of $15.6 million (the “Kaken R&D Payment”), which was initially recorded as deferred revenue, to provide the Company with research and development funds for the sole purpose of conducting certain clinical trials and other such research and development activities required to support the submission of a new drug application for sofpironium bromide. These clinical trials have a benefit to Kaken and have the characteristics of a vendor and customer relationship. The Company has accounted for the Kaken R&D Payment under the provisions of Topic 606. This Kaken R&D Payment is being initially recognized using an input method over the average estimated performance period of 1.45 years in proportion to the cost incurred. Upon receipt of the Kaken R&D Payment, on May 31, 2018, a milestone payment originally due upon the first commercial sale in Japan was removed from the Kaken Agreement and all future royalties to the Company under the Kaken Agreement were reduced 150 basis points.

Consequently, during the three months ended June 30, 2020 and 2019, the Company recognized revenue of $0.6 million and $2.6 million, respectively, related to the Kaken R&D Payment. During the six months ended June 30, 2020 and 2019, the Company recognized revenue of $1.7 million and $6.1 million, respectively, related to the Kaken R&D Payment. As of June 30, 2020 and December 31, 2019, the Company had a deferred revenue balance related to the Kaken R&D Payment of $0.1 million and $1.8 million, respectively, which is recorded in deferred revenue on the accompanying condensed consolidated balance sheets.

Milestones

At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company or the Company’s collaboration partner’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the Company’s estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment.

To date, Kaken has paid the Company $10.0 million in milestone payments under the Kaken Agreement.
Royalties

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue from any collaborative arrangement.

Net Income (Loss) per Common Share

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

Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period, including stock options, restricted stock units, and warrants, using the treasury stock method, and redeemable convertible preferred stock and
13


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

The following table sets forth the potential common shares excluded from the calculation of net income (loss) per common share, because their inclusion would be anti-dilutive:
Three and Six Months Ended
June 30,
20202019
Outstanding warrants19,556,108  349,074  
Outstanding options1,578,231  625,428  
Unvested restricted stock units253,045    
Redeemable convertible preferred stock (as converted into common stock)  1,256,466  
Promissory notes (as converted into common stock)  168,832  
Total 21,387,384  2,399,800  

Recent Accounting Pronouncements – Adopted
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends certain disclosure requirements over Level 1, Level 2, and Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted ASU 2018-13 during the three months ended March 31, 2020, however, the effect of adoption did not have a material impact on its disclosures.

NOTE 3. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):
June 30,
2020
December 31,
2019
Accrued contracted research and development services$4,443  $4,532  
Accrued license fee1,000    
Accrued professional fees365  1,788  
Accrued compensation453  59  
Total$6,261  $6,379  

NOTE 4. CONVERTIBLE PROMISSORY NOTES

In March 2019, the Company initiated a convertible promissory notes offering pursuant to which the Company issued unsecured convertible promissory notes (the “Prom Notes”), bearing interest at 12.00% with a maturity of one year. Through August 31, 2019, the Company had raised an aggregate principal amount of $7.4 million in Prom Notes, including $1.7 million from certain of the Company’s management and board of directors. On August 31, 2019, immediately prior to the Merger, the Prom Notes and related accrued interest converted into 1,069,740 shares of Private Brickell common stock at a conversion price of $7.54 per share (the “Conversion”).

The Prom Notes also provided for the issuance of warrants at 50% coverage, to acquire 490,683 shares of common stock. The warrants are exercisable for a term of five years at an exercise price of $10.36. The Company evaluated the various financial instruments under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815, “Derivatives and Hedging” (“ASC 815”), and determined the warrants required fair value accounting. The fair value of the warrants was recorded as a warrant liability upon issuance. The fair value of the warrants on the dates of issuance of $1.5 million was determined with the assistance of a third-party valuation firm. The fair value of the warrants was recorded as a debt discount upon issuance and was amortized to interest expense over the term of the Prom Notes based on the effective interest method.

14


At inception of the Prom Notes offering, the Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815 and determined that the embedded conversion features should be classified as a derivative, which was required to be bifurcated and recorded as a derivative liability.

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

During the three and six months ended June 30, 2019, the Company recognized $0.5 million of interest expense, including $0.4 million of accretion of discounts using an effective interest rate of 12.00%. During the three and six months ended June 30, 2020, no interest expense was recognized.

NOTE 5. NOTES PAYABLE

Loan Agreement with Hercules Capital, Inc.

On February 18, 2016, the Company entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc. (the “Lender”) under which the Company borrowed $7.5 million upon the execution of the Loan Agreement on February 18, 2016. The interest rate applicable to each tranche was variable based upon the greater of either (i) 9.2% and (ii) the sum of (a) the Prime Rate as reported in The Wall Street Journal minus 3.5%, plus (b) 9.2%. Payments under the Loan Agreement were interest only until June 1, 2017, followed by equal monthly payments of principal and interest through the maturity date of September 1, 2019. The Company paid the Lender aggregate facility fees of $0.2 million in connection with the Loan Agreement.

In connection with the Loan Agreement, the Company issued warrants to the Lender, which are exercisable for 9,005 shares of common stock at a per share exercise price of $33.31 (the “Hercules Capital Warrants”). The Hercules Capital Warrants will terminate, if not earlier exercised, on February 18, 2026. The fair value of the Hercules Capital Warrants was recorded at inception as a redeemable convertible preferred stock warrant liability upon issuance.
On September 3, 2019, the Company repaid the remaining outstanding loan balance of $2.6 million and an associated accrued interest and aggregate end-of-term payment of $0.6 million, and the Loan Agreement was terminated. At the effective time of the Merger, the warrant liability was reclassified to equity in the condensed consolidated balance sheets. As of June 30, 2020, there were no remaining unaccreted debt discounts and issuance costs.

Paycheck Protection Program
On April 15, 2020, the Company executed an unsecured promissory note (referred to in the condensed consolidated financial statements as of and for the six months ended June 30, 2020 as a “note payable”) to IberiaBank (the “PPP Loan”) pursuant to the U.S. Small Business Administration’s Paycheck Protection Program (the “PPP”) under Division A, Title I of the federal Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. A PPP loan is for the purpose of helping businesses keep their workforce employed during the Coronavirus (COVID-19) crisis. The Company is using the PPP Loan proceeds for covered payroll costs and certain other permitted costs in accordance with the relevant terms and conditions of the CARES Act.
The PPP Loan is in the principal amount of $0.4 million, bears interest at a fixed rate of 1.00% per annum and matures on April 15, 2022. The PPP Loan requires equal monthly payments of principal and interest commencing on November 15, 2020. The PPP Loan may be prepaid by the Company at any time prior to maturity without penalty. Under the terms of the PPP Loan, the Company is evaluating whether it may apply for forgiveness of the amount due on the PPP Loan.

15


NOTE 6. COMMITMENTS AND CONTINGENCIES
Operating Leases
In August 2016, the Company entered into a five-year lease for office space in Boulder, Colorado that expires on October 31, 2021 (the “Boulder Lease”) subject to the Company’s option to renew the Boulder Lease for two additional terms of three years each. Pursuant to the Boulder Lease, the Company leased 3,038 square feet of space in a multi-suite building. Rent payments under the Boulder Lease included base rent of $4,430 per month during the first year of the Boulder Lease with an annual increase of 3.5%, and additional monthly fees to cover the Company’s share of certain facility expenses, including utilities, property taxes, insurance, and maintenance, which were $2,160 per month during the first year of the Boulder Lease.
The Company recognized a right-of-use asset and corresponding lease liability on January 1, 2019, by calculating the present value of lease payments, discounted at 12.0%, the Company’s estimated incremental borrowing rate, over the 2.8 years expected remaining term. As the Company’s lease does not provide an implicit rate, the Company estimated the incremental borrowing rate based on industry peers. Industry peers consist of several public companies in the biotechnology industry with comparable characteristics, including clinical trials progress and therapeutic indications. Amortization of the operating lease right-of-use asset for the Boulder Lease amounted to $19 thousand and $37 thousand for the three and six months ended June 30, 2020, respectively, which was included in operating expense. As of June 30, 2020, the remaining lease term was 1.3 years.
The terms of the Boulder Lease provide for rental payments on a monthly basis on a graduated scale. Lease expense for the three months ended June 30, 2020 and 2019 was $18 thousand and $32 thousand, respectively. Lease expense for the six months ended June 30, 2020 and 2019 was $41 thousand and $60 thousand, respectively.
The following is a summary of the contractual obligations related to operating lease commitments as of June 30, 2020 and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods (in thousands):
Less than 1 year$93  
1-3 years31  
3-5 years  
More than 5 years  
Imputed interest(10) 
Total$114  

Amended and Restated License Agreement with Bodor
In February 2020, the Company, together with Brickell Subsidiary and Bodor Laboratories, Inc. and Dr. Nicholas S. Bodor (collectively, “Bodor”) entered into an amended and restated license agreement (the “Amended and Restated License Agreement”). The Amended and Restated License Agreement supersedes the License Agreement, dated December 15, 2012, entered into between Brickell Subsidiary and Bodor, as amended by Amendment No. 1 to License Agreement, effective as of October 21, 2013, and Amendment No. 2 to License Agreement, effective as of March 31, 2015.
The Amended and Restated License Agreement retains with the Company a worldwide, exclusive license to develop, manufacture, market, sell and sublicense products containing the proprietary compound sofpironium bromide based upon the patents referenced in the Amended and Restated License Agreement for a defined field of use. In exchange for entering into the Amended and Restated License Agreement, settling the previously disclosed dispute, and resolving the associated litigation between the Company and Bodor, the Company made an upfront payment of $1.0 million in cash to Bodor following the execution of the Amended and Restated License Agreement and the settlement agreement by and among the Company, Brickell Subsidiary, Inc., and Bodor, dated February 17, 2020. Additionally, under the original License Agreement and the Amended and Restated License Agreement, the Company is required to pay Bodor (i) a royalty on sales of product outside Kaken’s territory, including a low single-digit royalty on sales of certain product not covered by the patent estate licensed from Bodor; (ii) a specified percentage of all royalties the Company receives from Kaken for sales of product within its territory; (iii) a percentage of non-royalty sublicensing income the Company receives from Kaken or other sublicensees; and (iv) up to an aggregate of $1.8 million (plus an additional $0.1 million for approvals of additional products) in cash
16


payments and $1.5 million of shares of the Company’s common stock upon the achievement of certain development, regulatory and other milestones, including the enrollment of the first patient in the U.S. Phase 3 trials. During the three months ended June 30, 2020, based on the foregoing, the Company made a $0.5 million milestone payment to Bodor following the closing of the public offering in June 2020 and accrued an additional $1.0 million related to its plan to initiate its U.S. Phase 3 pivotal program in the fourth quarter of 2020. As a result, the Company recorded $1.5 million as research and development expense in the condensed consolidated statements of operations during the three months ended June 30, 2020.

NOTE 7. CAPITAL STOCK

Common Stock

Each share of the Company’s common stock is entitled to one vote, and the holders of the Company’s common stock are entitled to receive dividends when and as declared or paid by its board of directors. The Company has reserved authorized shares of common stock for future issuance at June 30, 2020 as follows:
June 30, 2020
Shares available for grant under the Omnibus Plan
  
Common stock warrants
20,669,533  
Common stock options outstanding
1,578,231  
Unvested restricted stock units
253,045  
Total22,500,809  
While 694,162 shares of common stock remained available for grant under the 2020 Omnibus Long-Term Incentive Plan (the “Omnibus Plan”) as of June 30, 2020, the Company’s board of directors, in connection with the public offering in June 2020 described below, utilized shares that were previously reserved for issuance under the Omnibus Plan and not subject to outstanding awards, to instead be reserved for issuance under the warrants issued in the June 2020 offering. As a result, the number of shares reserved for issuance as of June 30, 2020 under the Omnibus Plan was zero.
As described in the Company’s definitive proxy statement filed with the SEC on July 15, 2020, the Company plans to hold a special meeting of stockholders on August 31, 2020, at which stockholders will be requested to approve an amendment to the Company’s restated certificate of incorporation to increase the number of authorized shares of common stock from 50,000,000 to 100,000,000. If stockholders approve that amendment, the Company’s board of directors plans to utilize a portion of those additional authorized shares to again reserve for issuance the number of shares available for grant under the Omnibus Plan. At the special meeting, the Company’s stockholders will also be requested to approve an amendment to the Omnibus Plan to increase the number of shares available for issuance thereunder by 4,500,000 shares.
Public Offering of Common Stock and Warrants
In June 2020, the Company entered into an underwriting agreement with Oppenheimer & Co. Inc. (“Oppenheimer”), as representative of several underwriters, relating to the public offering, issuance and sale of 14,790,133 shares of its common stock, and, to certain investors, pre-funded warrants to purchase 2,709,867 shares of its common stock, and accompanying common stock warrants to purchase up to an aggregate of 17,500,000 shares of its common stock (the “Offering”). Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock. The public offering price of each share of common stock and accompanying common warrant was $1.15 and $1.149 for each pre-funded warrant and accompanying common warrant, respectively. The pre-funded warrants were immediately exercisable at a price of $0.001 per share of common stock. The common warrants were immediately exercisable at a price of $1.25 per share of common stock and will expire five years from the date of issuance. The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance. The Offering resulted in approximately $18.7 million of net proceeds to the Company after deducting underwriting commissions and discounts and other offering expenses of $1.4 million and excluding the proceeds, if any, from the exercise of the warrants. The Company anticipates using the net proceeds from the Offering for research and development, including clinical trials, working capital, and general corporate purposes.
17


Certain officers of the Company participated in the Offering by purchasing an aggregate purchase price of $0.2 million of the Company's common stock and warrants.
At Market Issuance Sales Agreement
On April 14, 2020, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Oppenheimer & Co. Inc. as the Company’s sales agent (the “Agent”). Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through the Agent shares of the Company’s common stock having an aggregate offering price of up to $8.0 million (the “Shares”). Any Shares will be issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-236353). Sales of the Shares, if any, will be made by means of ordinary brokers’ transactions on the Nasdaq Capital Market at market prices or as otherwise agreed by the Company and the Agent. Under the terms of the ATM Agreement, the Company may also sell the Shares from time to time to the Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the Shares to the Agent as principal would be pursuant to the terms of a separate placement notice between the Company and the Agent. As of June 30, 2020, the Company had not yet sold any Shares under the ATM Agreement.
Private Placement Offerings
On February 17, 2020, the Company and Lincoln Park entered into (i) a securities purchase agreement (the “Securities Purchase Agreement”); (ii) a purchase agreement (the “Purchase Agreement”); and (iii) a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Securities Purchase Agreement, Lincoln Park purchased, and the Company sold, (i) an aggregate of 950,000 shares of common stock (the “Common Shares”); (ii) a warrant to initially purchase an aggregate of up to 606,420 shares of common stock at an exercise price of $0.01 per share (the “Series A Warrant”); and (iii) a warrant to initially purchase an aggregate of up to 1,556,420 shares of common stock at an exercise price of $1.16 per share (the “Series B Warrant” and together with the Series A Warrant, the “Warrants”). The aggregate gross purchase price for the Common Shares and the Warrants was $2.0 million.

Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $28.0 million in the aggregate of shares of common stock. Sales of common stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over the 36-month period commencing on the date the conditions set forth in the Purchase Agreement are satisfied (such date on which all of such conditions are satisfied, the “Commencement Date”).

Following the Commencement Date, under the Purchase Agreement, on any business day selected by the Company, the Company may direct Lincoln Park to purchase up to 100,000 shares of common stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 125,000 shares, provided that the closing sale price of the common stock is not below $3.00 on the purchase date; and (ii) the Regular Purchase may be increased to up to 150,000 shares, provided that the closing sale price of the common stock is not below $5.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based off of prevailing market prices of common stock immediately preceding the time of sale. In addition to Regular Purchases, the Company may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Purchase Agreement. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of common stock. As of June 30, 2020, the Company has not made any sales of its common stock under the Purchase Agreement.

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

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

18


Preferred Stock
As of June 30, 2020, the Company had no shares of preferred stock outstanding and had not designated the rights, preferences, or privileges of any class or series of preferred stock. Under the Company’s restated certificate of incorporation, the Company’s board of directors has the authority to issue up to 5,000,000 shares of preferred stock with a par value of $0.01 per share, at its discretion, in one or more classes or series and to fix the powers, preferences and rights, and the qualifications, limitations, or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, and liquidation preferences, without further vote or action by the Company’s stockholders.

NOTE 8. STOCK-BASED COMPENSATION

Equity Incentive Plans
2020 Omnibus Plan
On April 20, 2020, the Company’s stockholders approved the Omnibus Plan, which replaced, with respect to new award grants, the Company’s 2009 Equity Incentive Plan, as amended and restated (the “2009 Plan”), and the Vical Equity Incentive Plan (the “Vical Plan”) (collectively, the “Prior Plans”) that were previously in effect. The number of shares authorized for issuance under the Omnibus Plan includes 625,000 new shares and 54,389 shares that remained available for future grants pursuant to the Prior Plans, plus any shares that are forfeited pursuant to outstanding grants under the Prior Plans that would have again become available for grants pursuant to the terms of those plans. Following the approval of the Omnibus Plan on April 20, 2020, no additional grants will be made pursuant to the Prior Plans, but awards outstanding under those plans as of that date remain outstanding in accordance with their terms.

At June 30, 2020, 92,436 shares were subject to outstanding awards under the Omnibus Plan, and while 694,162 shares remained available for grant under the Omnibus Plan, those shares were no longer reserved for issuance, as described above in Note 7. “Capital Stock.”
2009 Equity Incentive Plan
The 2009 Plan was replaced by the Omnibus Plan on April 20, 2020 and, as a result, at June 30, 2020, there were no remaining shares available for new grants under the 2009 Plan. However, at June 30, 2020, 1,351,974 shares were subject to outstanding awards under the 2009 Plan, which awards remain outstanding in accordance with their terms.
Vical Equity Incentive Plan
In connection with the Merger, the Company adopted the Vical Plan, which was replaced by the Omnibus Plan on April 20, 2020. As a result, at June 30, 2020, there were no remaining shares available for new grants under the Vical Plan. However, at June 30, 2020, 386,866 shares were subject to outstanding awards under the Vical Plan, which awards remain outstanding in accordance with their terms.
Stock-based Compensation Expense

Total stock-based compensation expense reported in the condensed consolidated statements of operations was allocated as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Research and development
$68  $78  $172  $156  
General and administrative
385  221  684  527  
Total stock-based compensation expense
$453  $299  $856  $683  

19


NOTE 9. SUBSEQUENT EVENTS
Proposed Amendment of Certificate of Incorporation and Omnibus Plan

On July 14, 2020, the Company’s board of directors adopted, subject to stockholder approval, an amendment to Article IV, Section A of the Company’s restated certificate of incorporation (the “Charter Amendment”) to increase the number of authorized shares of the Company’s common stock by 50,000,000 shares, or from 50,000,000 shares to 100,000,000 shares. Further, on July 14, 2020, the Company’s board of directors approved the following amendments to the Omnibus Plan, subject to stockholder approval:

an increase in the maximum number of shares that may be delivered under the Omnibus Plan by an additional 4,500,000 shares, from 679,389 shares to 5,179,389 shares (which amount is in addition to any shares granted previously under the Prior Plans that are forfeited, expire or are canceled after the effective date of the Omnibus Plan without delivery of shares or which result in the forfeiture of the shares back to the Company to the extent that such shares would have been added back to the reserve under the terms of the Prior Plans); and
a corresponding increase in the maximum number of shares that may be delivered with respect to incentive stock options granted under the Omnibus Plan by an additional 4,500,000 shares, from 679,389 shares to 5,179,389 shares;

(collectively, the “Plan Amendments”).

The Charter Amendment and the Plan Amendments are subject to stockholder approval. On July 27, 2020, the Company filed a definitive proxy statement with the SEC related to a special meeting of stockholders to be held on August 31, 2020, at which stockholders will be requested to approve the Charter Amendment and the Plan Amendments.

20


FORWARD-LOOKING STATEMENTS
 
This quarterly report on Form 10-Q (“Quarterly Report”), contains forward-looking statements that involve substantial risks and uncertainties for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, liquidity, future revenue, projected expenses, results of operations, expectations concerning the timing and our ability to commence and subsequently report data from planned non-clinical studies and clinical trials, prospects, plans and objectives of management are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect,” “predict,” “potential,” “opportunity,” “goals,” or “should,” and similar expressions are intended to identify forward-looking statements. Such statements are based on management’s current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors. Unless otherwise mentioned or unless the context requires otherwise, all references in this Quarterly Report to “Brickell,” “Brickell Subsidiary,” “Company,” “we,” “us,” and “our,” or similar references, refer to Brickell Biotech, Inc., and our consolidated subsidiaries.
 
We based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, and in Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in this Quarterly Report, and under a similar heading in any other periodic or current report we may file with the U.S. Securities and Exchange Commission (the “SEC”), in the future. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge quickly and from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement.
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a clinical-stage pharmaceutical company focused on the development of innovative and differentiated prescription therapeutics for the treatment of debilitating skin diseases. Our pipeline consists of potential novel therapeutics for hyperhidrosis and other prevalent dermatological conditions. Our executive management team and board of directors bring extensive experience in product development and global commercialization, having served in leadership roles at large global pharmaceutical companies and biotechs that have developed and/or launched successful products, including several that were first-in-class and/or achieved iconic status, such as Cialis®, Taltz®, Gemzar®, Prozac®, Cymbalta® and Juvederm®.
Our pivotal Phase 3-ready clinical-stage product candidate, sofpironium bromide, is a proprietary new molecular entity. It belongs to a class of medications called anticholinergics. Anticholinergics block the action of acetylcholine, a chemical that transmits signals within the nervous system that are responsible for a range of bodily functions, including activation of the sweat glands. Sofpironium bromide was retrometabolically designed. Retrometabolic drugs are designed to exert their action topically and are potentially rapidly metabolized once absorbed into the blood. This proposed mechanism of action may allow for highly effective doses to be used while limiting systemic side effects. We intend to develop sofpironium bromide as a potential best-in-class, self-administered, once daily, topical therapy for the treatment of primary axillary hyperhidrosis.
Hyperhidrosis is a life-altering condition of sweating beyond what is physiologically required to maintain normal thermal regulation. It is believed to be caused by an overactive cholinergic response of the sweat glands and affects an estimated 15.3 million, or 4.8%, of the U.S. population. According to a 2016 update on the prevalence and severity of hyperhidrosis in the United States by Doolittle et al., axillary (underarm) hyperhidrosis, which is the targeted first potential indication for
21


sofpironium bromide, is the most common occurrence of hyperhidrosis, affecting approximately 65% of patients in the United States or an estimated 10 million individuals.
We and our development partner in Asia, Kaken Pharmaceutical Co., Ltd., (“Kaken”), have conducted 19 clinical trials of sofpironium bromide gel that encompass over 1,300 subjects in the United States and Japan. These trials evaluated the potential safety, tolerability, pharmacokinetics (PK), and efficacy of sofpironium bromide gel in adult and pediatric primary axillary hyperhidrosis patients and healthy adult subjects. Under our License, Development and Commercialization Agreement with Kaken, dated March 31, 2015 (as amended, the “Kaken Agreement”), in exchange for paying us an upfront, nonrefundable payment, we granted Kaken the exclusive right to develop, manufacture and commercialize sofpironium bromide in Japan and certain other Asian countries. In March 2019, Kaken completed a Phase 3 trial in patients with primary axillary hyperhidrosis in Japan, achieving statistical significance (p<0.05) on all primary and secondary endpoints.
Based on the positive results in the clinical trials for sofpironium bromide globally to date, we intend to initiate two pivotal Phase 3 clinical trials in up to 350 subjects per trial with primary axillary hyperhidrosis in the United States. Assuming the results of the Phase 3 clinical trials are favorable, we plan thereafter to submit a new drug application (“NDA”) to the U.S. Food and Drug Administration (the “FDA”), for the treatment of primary axillary hyperhidrosis by sofpironium bromide.
Recent Developments
Study Announcements
In July 2020, we completed the analysis of our 12-month Phase 3 open-label long-term safety study, in 300 subjects 9 years and older with primary axillary hyperhidrosis, sofpironium bromide gel, 5% and 15%. The study results confirmed that sofpironium bromide gel, at both concentrations, was safe and generally well tolerated, which was consistent with the earlier Phase 2 clinical trial results. No treatment-related serious adverse events were observed. We expect to release additional details at an upcoming scientific forum.
In June 2020, we announced positive Phase 3 pivotal study results in Japan from Kaken. All primary and secondary efficacy endpoints of the study were achieved and sofpironium bromide was safe and generally well tolerated. The study evaluated a total of 281 Japanese patients randomized 1:1 to apply sofpironium bromide gel, 5% (SB) or vehicle gel (placebo) to the axillae (i.e., underarm) for 42 days. These study results were presented as part of the Late-Breaking Research Program during the American Academy of Dermatology (AAD) Virtual Meeting Experience.
In January 2020, Kaken announced submission of an NDA in Japan requesting approval to manufacture and market sofpironium bromide gel, 5% for primary axillary hyperhidrosis based on the positive Phase 3 data.
Upcoming Milestones
Plan to initiate the U.S. Phase 3 pivotal program for sofpironium bromide gel, 15% in the fourth quarter of 2020. The planned program will be comprised of two pivotal Phase 3 trials to evaluate approximately 350 subjects per trial with primary axillary hyperhidrosis in the U.S. The first Phase 3 study is expected to begin in the fourth quarter of 2020.
Expect Kaken to receive regulatory decision for sofpironium bromide gel, 5% in Japan, as early as the fourth quarter of 2020. Under the agreement with Kaken, we are entitled to receive commercial milestone payments, as well as tiered royalties based on a percentage of net sales of sofpironium bromide in Japan.
Public Offering of Common Stock and Warrants
In June 2020, we entered into an underwriting agreement with Oppenheimer & Co. Inc. (“Oppenheimer”), as representative of several underwriters, relating to the public offering, issuance and sale of 14,790,133 shares of our common stock, and, to certain investors, pre-funded warrants to purchase 2,709,867 shares of our common stock, and accompanying common warrants to purchase up to an aggregate of 17,500,000 shares of our common stock (the “Offering”). Each share of common stock and pre-funded warrant to purchase one share of our common stock was sold together with a common warrant to purchase one share of our common stock. The public offering price of each share of common stock and accompanying common warrant was $1.15 and $1.149 for each pre-funded warrant and accompanying common warrant, respectively. The
22


pre-funded warrants were immediately exercisable at a price of $0.001 per share of our common stock. The common warrants were immediately exercisable at a price of $1.25 per share of our common stock and will expire five years from the date of issuance. The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance. The Offering resulted in approximately $18.7 million of net proceeds after deducting underwriting commissions and discounts and other offering expenses of $1.4 million and excluding the proceeds, if any, from the exercise of the warrants. We anticipate using the proceeds from the Offering for research and development, including clinical trials, working capital, and general corporate purposes.
At Market Issuance Sales Agreement
In April 2020, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Oppenheimer as our sales agent (the “Agent”). Pursuant to the terms of the ATM Agreement, we may sell from time to time through the Agent shares of our common stock having an aggregate offering price of up to $8.0 million (the “Shares”). Any Shares will be issued pursuant to our shelf registration statement on Form S-3 (Registration No. 333-236353). Sales of the Shares, if any, will be made by means of ordinary brokers’ transactions on the Nasdaq Capital Market at market prices or as otherwise agreed by us and the Agent. Under the terms of the ATM Agreement, we may also sell the Shares from time to time to the Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the Shares to the Agent as principal would be pursuant to the terms of a separate placement notice between us and the Agent.
Private Placement Offerings
In February 2020, we entered into (i) a securities purchase agreement (the “Securities Purchase Agreement”); (ii) a purchase agreement (the “Purchase Agreement”); and (iii) a registration rights agreement (the “Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC, an Illinois limited liability company (“Lincoln Park”). Pursuant to the Securities Purchase Agreement, Lincoln Park purchased, and we sold, (i) an aggregate of 950,000 shares of common stock (the “Common Shares”), (ii) a warrant to initially purchase an aggregate of up to 606,420 shares of common stock at an exercise price of $0.01 per share (the “Series A Warrant”), and (iii) a warrant to initially purchase an aggregate of up to 1,556,420 shares of common stock at an exercise price of $1.16 per share (the “Series B Warrant”, and together with the Series A Warrant, the “Warrants”). The aggregate gross purchase price for the Common Shares and the Warrants was $2.0 million.
Under the terms and subject to the conditions of the Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $28.0 million in the aggregate of shares of our common stock. Sales of common stock by us, if any, will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 36-month period commencing on the date the conditions set forth in the Purchase Agreement are satisfied (such date on which all of such conditions are satisfied, the “Commencement Date”).
Following the Commencement Date, under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 100,000 shares of our common stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 125,000 shares, provided that the closing sale price of the common stock is not below $3.00 on the purchase date; and (ii) the Regular Purchase may be increased to up to 150,000 shares, provided that the closing sale price of the common stock is not below $5.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based off of prevailing market prices of common stock immediately preceding the time of sale. In addition to Regular Purchases, we may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Purchase Agreement. In all instances, we may not sell shares of our common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of our common stock. As of June 30, 2020, we have not made any sales of our common stock under the Purchase Agreement.
We agreed with Lincoln Park that we will not enter into any “variable rate” transactions with any third party, subject to certain exceptions, for a period defined in the Purchase Agreement. We have the right to terminate the Purchase Agreement at any time, at no cost or penalty.
23


Amended and Restated License Agreement with Bodor
In February 2020, we, together with Brickell Subsidiary and Bodor Laboratories, Inc. and Dr. Nicholas S. Bodor (collectively, “Bodor”) entered into an amended and restated license agreement (the “Amended and Restated License Agreement”). The Amended and Restated License Agreement supersedes the License Agreement, dated December 15, 2012, entered into between Brickell Subsidiary and Bodor, as amended by Amendment No. 1 to License Agreement, effective as of October 21, 2013, and Amendment No. 2 to License Agreement, effective as of March 31, 2015.
The Amended and Restated License Agreement retains with us a worldwide, exclusive license to develop, manufacture, market, sell and sublicense products containing the proprietary compound sofpironium bromide based upon the patents referenced in the Amended and Restated License Agreement for a defined field of use. In exchange for entering into the Amended and Restated License Agreement, settling the previously disclosed dispute, and resolving the associated litigation between us and Bodor, we made an upfront payment of $1.0 million in cash to Bodor following the execution of the Amended and Restated License Agreement and the settlement agreement by and among the Company, Brickell Subsidiary, Inc., and Bodor, dated February 17, 2020. Additionally, based on the License Agreement and the Amended and Restated License Agreement, we are required to pay Bodor (i) a royalty on sales of product outside Kaken’s territory, including a low single-digit royalty on sales of certain product not covered by the patent estate licensed from Bodor; (ii) a specified percentage of all royalties we receive from Kaken for sales of product within its territory; (iii) a percentage of non-royalty sublicensing income we receive from Kaken or other sublicensees; and (iv) up to an aggregate of $1.8 million (plus an additional $0.1 million for approvals of additional products) in cash payments and $1.5 million of shares of the our common stock upon the achievement of certain development, regulatory and other milestones, including the enrollment of the first patient in the U.S. Phase 3 trials. During the three months ended June 30, 2020, based on the foregoing, we made a $0.5 million milestone payment to Bodor following the closing of the public offering in June 2020 and accrued an additional $1.0 million related to our plan to initiate our U.S. Phase 3 pivotal program in the fourth quarter of 2020. As a result, we recorded an aggregate of $1.5 million as research and development expense in the condensed consolidated statements of operations during the three months ended June 30, 2020.
Corporate History
On August 31, 2019, the Delaware corporation formerly known as “Vical Incorporated” (“Vical”), completed a reverse merger transaction in accordance with the terms and conditions of the Agreement and Plan of Merger and Reorganization, dated June 2, 2019, as further amended on August 20, 2019 and August 30, 2019, by and among Vical, Brickell Biotech, Inc., a then privately-held Delaware corporation that began activities in September 2009 (“Private Brickell”) and Victory Subsidiary, Inc., a wholly-owned subsidiary of Vical (“Merger Sub”), pursuant to which Merger Sub merged with and into Private Brickell, with Private Brickell surviving the merger as a wholly-owned subsidiary of Vical (the “Merger”). Additionally, on August 31, 2019, immediately after the completion of the Merger, the Company changed its name from “Vical Incorporated” to “Brickell Biotech, Inc.”
Financial Overview
Our operations to date have been limited to business planning, raising capital, developing our pipeline assets (in particular sofpironium bromide), identifying product candidates, and other research and development. To date, we have financed operations primarily through funds received from license and collaboration agreements, cash and investments acquired in connection with the Merger, and funds received from the sale of convertible preferred stock, debt, convertible notes, common stock, and warrants. We do not have any products approved for sale and have not generated any product sales. Since inception and through June 30, 2020, we have raised or generated an aggregate of $146.7 million to fund our operations, of which $39.1 million was through license and collaboration agreements, $37.0 million was from cash and investments acquired in the Merger, $33.6 million was from the sale of convertible preferred stock, $22.1 million was from the sale of common stock and warrants, $7.5 million was from the sale of debt, and $7.4 million was from the sale of convertible notes. As of June 30, 2020, we had cash and cash equivalents of $21.6 million. In addition, we had approximately $4.6 million in prepaid expenses related to the Phase 3 program of sofpironium bromide.
Since inception, we have incurred operating losses. We recorded a net loss of $5.1 million and $3.7 million for the three months ended June 30, 2020 and 2019, respectively, and $9.2 million and $8.2 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, we had an accumulated deficit of $94.2 million. We expect to continue incurring significant expenses and operating losses for at least the next several years as we:
24


• initiate and execute our two pivotal Phase 3 clinical trials for sofpironium bromide in the United States;
• contract to manufacture product candidates;
• advance research and development-related activities to develop and expand our product pipeline;
• maintain, expand, and protect our intellectual property portfolio;
• hire additional staff, including clinical, scientific, and management personnel; and
• add operational and finance personnel to support product development efforts and to support operating as a public company.
We do not expect to generate significant revenue unless and until we successfully complete development of, obtain marketing approval for, and commercialize product candidates, either alone or in collaboration with third parties. We expect these activities may take several years and our success in these efforts is subject to significant uncertainty, especially in light of our need to raise substantial funding in order to complete our Phase 3 program. Accordingly, we expect we will need to raise substantial additional capital prior to the regulatory approval and commercialization of any of our product candidates. Until such time, if ever, that we generate substantial product revenues, we expect to finance our operations through public or private equity or debt financings, collaborations or licenses, or other available financing transactions. However, we may be unable to raise additional funds through these or other means when needed.
Key Components of Operations
Collaboration Revenue
Collaboration revenue generally consists of revenue recognized under our strategic collaboration agreements for the development and commercialization of our product candidates. Our strategic collaboration agreements generally outline overall development plans and include payments we receive at signing, payments for the achievement of certain milestones, and royalties. For these activities and payments, we utilize judgment to assess the nature of the performance obligations to determine whether the performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We have not recognized any royalty revenue to date. Other than the revenue we may generate in connection with these agreements, we do not expect to generate any revenue from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into other collaborative agreements with third parties.
Research and Development Expenses
Research and development expenses principally consist of payments to third parties known as Clinical Research Organizations (“CROs”). These CROs help plan, organize, and conduct clinical and nonclinical studies under our direction. Personnel costs, including wages, benefits, and share-based compensation, related to our research and development staff in support of product development activities are also included, as well as costs incurred for supplies, preclinical studies and toxicology tests, consultants, and facility and related overhead costs.
Below is a summary of our research and development expenses related to sofpironium bromide by categories of costs for the periods presented. The other expenses category includes travel, lab and office supplies, clinical trial management software, license fees, and other miscellaneous expenses. We expect our research and development expenses to increase in future periods following the initiation of the Phase 3 program for sofpironium bromide.
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
(in thousands)
Direct program expenses related to sofpironium bromide$1,964  $3,392  $3,731  $8,419  
Personnel and other expenses
Salaries, benefits, and stock-based compensation712  795  1,475  1,655  
Regulatory and compliance 31  58  140