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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from           to

Commission file number 001-38709

RVL Pharmaceuticals plc

(Exact name of registrant as specified in its charter)

Ireland

   

Not Applicable

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

400 Crossing Boulevard

Bridgewater, NJ 08807

(Address of principal executive offices)

(Zip Code)

(908) 809-1300

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary shares, $0.01 nominal value per share

RVLP

Nasdaq Global Select Market

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

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

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

There were 83,549,659 ordinary shares ($0.01 nominal value per share) outstanding as of May 11, 2022.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "plan," "should," "estimate," "continue," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives and financial needs. Examples of forward-looking statements include, among others, statements we make regarding: our intentions, beliefs or current expectations concerning, among other things, future operations; future financial performance, trends and events, particularly relating to sales of Upneeq; U.S. Food and Drug Administration, or the FDA, and other regulatory applications, approvals and actions; the continuation of historical trends; our ability to manage costs and service our debt; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs.

We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include the following:

Due to our dependence on one product, Upneeq, our business could be materially adversely affected if Upneeq does not perform as well as expected.
Our business may be adversely affected by the ongoing coronavirus outbreak.
Upneeq may fail to achieve market acceptance by clinicians and patients, or others in the medical community, and the market opportunity for Upneeq may be smaller than we estimate.
If we are unable to successfully commercialize Upneeq, or develop new products, on a timely or cost effective basis, our operating results will suffer.
Our profitability depends on our customers’ willingness to pay the price we charge for Upneeq. If we decide to lower the price we charge for Upneeq our profitability could materially suffer.
Our marketing and sales expenditures may not result in the commercial success of Upneeq.
There is no certainty that we will be able to get FDA approval of arbaclofen extended release (“ER”) and no certainty that we will be able to realize any value for arbaclofen ER if we decide to license or divest the product.
We expend a significant amount of resources on research and development, including milestones on in licensed products, which may not lead to successful product introductions.
If we are unable to maintain our sales, marketing and distribution capabilities, or establish additional capabilities if and when necessary, we may not be successful in commercializing Upneeq.
We depend to a large extent on third-party suppliers and distributors for Upneeq, including Nephron Pharmaceuticals, and if such suppliers and distributors are unable to supply raw materials for manufacture and deliver Upneeq in a timely manner, or are unable to manufacture Upneeq at a scale sufficient to meet demand, it could have material adverse effect on our business, financial position and results of operations.
If Upneeq does not produce the intended effects, our business may suffer.

2

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Failures of or delays in clinical trials are common and have many causes, and such failures or delays could result in increased costs to us and could prevent or delay our ability to obtain regulatory approval and commence product sales for new products.
The drug regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
We are, and will continue to be in the future, a party to legal proceedings that could result in adverse outcomes;
Other factors that are described in Part 1, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 30, 2022.

The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.

3

Table of Contents

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited).

5

Unaudited Condensed Consolidated Balance Sheets – March 31, 2022 and December 31, 2021

5

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss – Three Months Ended March 31, 2022 and 2021

6

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2022 and 2021

7

Unaudited Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and 2021

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

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

19

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

26

ITEM 4. Controls and Procedures.

26

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

26

ITEM 1A. Risk Factors.

26

ITEM 6. Exhibits.

27

SIGNATURES

28

4

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements (unaudited).

RVL PHARMACEUTICALS PLC

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

    

March 31, 2022

    

December 31, 2021

    

Assets

 

  

 

  

 

Current assets:

 

  

 

  

 

Cash and cash equivalents

$

26,341

$

40,444

Other receivables

 

17,572

 

2,133

Inventories, net

 

838

 

838

Prepaid expenses and other current assets

 

12,481

 

12,901

Financial commitment asset

2,096

3,063

Total current assets

 

59,328

 

59,379

Property, plant and equipment, net

 

804

 

866

Operating lease assets

1,119

1,368

Indefinite-lived intangible assets

 

27,210

 

27,210

Goodwill

 

55,847

 

55,847

Total assets

$

144,308

$

144,670

Liabilities and Shareholders' Equity

 

  

 

  

Current liabilities:

 

  

 

  

Trade accounts payable

$

4,732

$

3,777

Accrued liabilities

 

14,345

 

13,077

Current portion of debt

1,512

2,409

Current portion of obligations under finance leases

2

5

Current portion of lease liability

688

839

Income taxes payable - current portion

 

13

 

1

Total current liabilities

 

21,292

 

20,108

Long-term debt (measured at fair value and representing $55,000 of aggregate unpaid principal)

 

45,100

 

43,800

Warrant liability

7,728

3,220

Long-term portion of lease liability

478

592

Income taxes payable - long term portion

 

67

 

66

Deferred taxes

 

160

 

151

Total liabilities

 

74,825

 

67,937

Commitments and contingencies (See Note 11)

 

  

 

  

Shareholders' equity:

 

  

 

  

Ordinary shares ($0.01 nominal value, 400,000,000 shares authorized, 83,515,411 and 83,297,567 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)

835

833

Preferred shares ($0.01 nominal value, 40,000,000 shares authorized, no shares issued and outstanding)

Euro deferred shares (€1.00 nominal value, 25,000 shares authorized, no shares issued and outstanding)

Additional paid in capital

592,999

591,730

Accumulated deficit

(524,351)

(517,530)

Accumulated other comprehensive income

 

 

1,700

Total shareholders' equity

 

69,483

 

76,733

Total liabilities and shareholders' equity

$

144,308

$

144,670

See accompanying notes to unaudited condensed consolidated financial statements.

5

Table of Contents

RVL PHARMACEUTICALS PLC

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

Three Months Ended March 31, 

    

2022

    

2021

    

  

  

Net product sales

$

5,944

$

773

Royalty and licensing revenue

 

15,500

 

162

Total revenues

 

21,444

 

935

Cost of goods sold

 

2,144

 

679

Gross profit

 

19,300

 

256

Selling, general and administrative expenses

 

23,834

 

16,952

Research and development expenses

 

862

 

2,204

Total operating expenses

 

24,696

 

19,156

Operating loss before gain on sales of product rights, net

 

(5,396)

 

(18,900)

Gain on sales of product rights, net

5,636

Operating loss

(5,396)

(13,264)

Interest expense and amortization of debt discount

 

985

 

521

Change in fair value of debt and interest expense

1,044

Change in fair value of warrants

4,508

Other non-operating income, net

 

(5,037)

 

(9)

Total other non-operating expense

 

1,500

 

512

Loss before income taxes

 

(6,896)

 

(13,776)

Income tax benefit, continuing operations

 

(75)

 

(4)

Loss from continuing operations

(6,821)

(13,772)

Income from discontinued operations before income taxes

4,699

Income tax expense, discontinued operations

 

 

539

Income from discontinued operations, net of tax

4,160

Net loss

$

(6,821)

$

(9,612)

Change in fair value of debt due to change in credit risk, net of tax

(1,700)

Comprehensive loss

$

(8,521)

$

(9,612)

(Loss) earnings per ordinary share:

Basic and diluted, continuing operations

$

(0.08)

$

(0.22)

Basic and diluted, discontinued operations

0.07

Basic and diluted

$

(0.08)

$

(0.15)

Weighted average ordinary shares outstanding:

 

  

 

Basic and diluted

 

83,489,900

62,678,130

See accompanying notes to unaudited condensed consolidated financial statements.

6

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RVL PHARMACEUTICALS PLC

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except share data)

  

  

  

  

Accumulated

  

other

Ordinary shares

Additional

Accumulated

comprehensive

Total

Shares

Amount

paid in capital

deficit

income (loss)

shareholders' equity

Balance at January 1, 2021

62,545,832

$

625

$

548,070

$

(452,610)

$

(2,229)

$

93,856

Share compensation

173,299

2

1,309

1,311

Net loss

(9,612)

(9,612)

Payments for taxes related to the net share settlement of equity awards

(358)

(358)

Balance at March 31, 2021

62,719,131

$

627

$

549,021

$

(462,222)

$

(2,229)

$

85,197

Balance at January 1, 2022

83,297,567

$

833

$

591,730

$

(517,530)

$

1,700

$

76,733

Share compensation

217,844

2

1,326

1,328

Net loss

(6,821)

(6,821)

Payments for taxes related to the net share settlement of equity awards

(57)

(57)

Change in credit risk associated with fair value of debt

(1,700)

(1,700)

Balance at March 31, 2022

83,515,411

$

835

$

592,999

$

(524,351)

$

$

69,483

See accompanying notes to unaudited condensed consolidated financial statements.

7

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RVL PHARMACEUTICALS PLC

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended March 31, 

    

2022

    

2021

Cash Flows from Operating Activities:

 

  

 

  

Net loss from continuing operations

$

(6,821)

$

(13,772)

Net income from discontinued operations

4,160

Net loss

(6,821)

(9,612)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

89

 

3,986

Share compensation

1,209

1,177

Change in fair value of debt

(400)

Change in fair value of warrants

4,508

Deferred income tax benefit

 

9

 

83

Gain on sale of fixed and leased assets

(37)

(3)

Gain on sale of product rights, net

(5,636)

Bad debt provision

 

 

5

Amortization of deferred financing and loan origination fees

967

277

Change in operating assets and liabilities:

 

 

Other receivables

 

(15,439)

 

3,817

Inventories, net

 

 

655

Prepaid expenses and other current assets

 

420

 

1,398

Trade accounts payable

 

955

 

(2,246)

Accrued and other current liabilities

 

1,264

 

(5,387)

Net cash used in operating activities

 

(13,276)

 

(11,486)

Cash Flows from Investing Activities:

 

  

 

Proceeds from product rights disposal

7,300

Proceeds from sale of fixed and leased assets

37

3

Purchases of property, plant and equipment

(27)

(422)

Net cash provided by investing activities

 

10

 

6,881

Cash Flows from Financing Activities:

 

  

 

  

Payments on finance lease obligations

 

(2)

(16)

Payments on insurance financing loan

 

(897)

Payments for taxes related to net share settlement of share-based awards

(57)

(358)

Proceeds from issuance of ordinary shares under ESPP

119

138

Net cash used in financing activities

 

(837)

 

(236)

Net change in cash and cash equivalents

 

(14,103)

 

(4,841)

Cash and cash equivalents, beginning of period

 

40,444

114,053

Cash and cash equivalents, end of period

$

26,341

$

109,212

See accompanying notes to unaudited condensed consolidated financial statements.

8

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization and Nature of Operations

RVL Pharmaceuticals plc, an Irish public limited company, together with its subsidiaries (the “Company”), is a specialty pharmaceutical company focused on the development and commercialization of products that target markets with underserved patient populations. In July 2020, the Company received regulatory approval from the FDA for RVL-1201, or Upneeq, (oxymetazoline hydrochloride ophthalmic solution), 0.1%, for the treatment of acquired blepharoptosis, or droopy or low-lying eyelids in adults. Upneeq was commercially launched in September 2020 to a limited number of eye care professionals with commercial operations expanded in 2021 among ophthalmology, optometry and oculoplastic specialties. In February 2022, Upneeq was commercially expanded into the medical aesthetics market.

On August 27, 2021, the Company closed the divestiture of its portfolio of branded and non-promoted products and its Marietta, Georgia, manufacturing facility (the “Legacy Business”) to certain affiliates of Alora Pharmaceuticals (“Alora”) for $111 million in cash upon closing, subject to certain adjustments, and up to $60 million in additional contingent milestone payments. Pursuant to the agreement the Company post-closing retained the rights to Upneeq and to arbaclofen extended release (“ER”) tablets which is under development for the treatment of spasticity in multiple sclerosis.

With the divestiture of the Legacy Business the Company’s commercial operations are conducted by its wholly-owned subsidiaries, RVL Pharmaceuticals, Inc. (“RVL Pharmaceuticals”) and RVL Pharmacy, LLC, (“RVL Pharmacy”). RVL Pharmacy operates pharmacy operations dedicated to the processing and fulfillment of prescriptions for Upneeq.

Unless otherwise indicated or required by the context, references throughout to “RVL,” or the “Company,” refer to the Company’s continuing operations following the sale or the Legacy Business to Alora.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and under the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. In management’s opinion, the interim financial data presented herein includes all adjustments (consisting solely of normal, recurring adjustments) that are necessary for a fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. GAAP has been condensed or omitted in accordance with rules and regulations of the SEC. The operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2022 or any period thereafter. The accompanying condensed consolidated balance sheet data as of December 31, 2021 was derived from the audited consolidated financial statements.

Management believes that the disclosures included herein are adequate to make the information presented not misleading in any material respect when read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. Those audited consolidated financial statements include a summary of our significant accounting policies, updates to which are included in this Note 2.

Discontinued Operations—Upon divestiture of a business, the Company classifies such business as a discontinued operation, if the divested business represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The results of businesses that have qualified as discontinued operations have been presented as such for all reporting periods. Results of discontinued operations include all revenues and expenses directly derived from such businesses; general corporate overhead is not allocated to discontinued operations.

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The divestiture of the Legacy Business qualifies as a discontinued operation and therefore has been presented as such. See Note 4, Discontinued Operations, for more information.

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported throughout the financial statements. Actual results could differ materially from those estimates.

Supplemental Cash Flow DisclosuresSupplemental cash flow disclosures are as follows (in thousands):

Three Months Ended March 31, 

2022

    

2021

Cash paid for:

Interest

$

1,461

$

2,674

Income taxes

$

85

$

258

Recently Issued Accounting Standards

In August 2020, the FASB issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance related to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. The standard, which allows entities to adopt the guidance through either a modified or fully retrospective method of transition, becomes effective for the Company, as a smaller reporting company, for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently assessing the impact of adoption of ASU 2020-06.

There are no other recently issued accounting standards that are expected to have a material to have a material impact to the Company’s financial position or results of operations upon adoption.

Note 3. Liquidity

At March 31, 2022, the Company had cash and cash equivalents of $26.3 million, an accumulated deficit of $524.4 million, and total long-term debt with aggregate principal maturities of $55.0 million, with such maturities commencing in March 2024 and extending through October 2026 (see Note 8). In addition, the Company’s primary indebtedness contains various restrictive covenants including minimum liquidity and minimum quarterly product sales requirements. For the three months ended March 31, 2022 and 2021, the Company incurred net losses from continuing operations of $6.8 million and $13.8 million, respectively. For the three months ended March 31, 2022, the Company used $13.3 million in cash for operating activities.

The divestiture of the Legacy Business in 2021 resulted in the loss of substantially all the Company’s revenue generating assets. The Company’s current business plan is focused on the continued launch and commercialization of Upneeq, which has and will continue to diminish the Company’s cash flows in at least the near term. The Company will require additional capital to fund its operating needs, including the expanded commercialization of Upneeq and other activities. The Company expects to incur significant expenditures and sustained operating losses for the foreseeable future.

Management of the Company does not believe that current sources of liquidity will be sufficient to fund the Company’s planned expenditures and meet its obligations for at least 12 months following the date the accompanying unaudited condensed consolidated financial statements are issued without raising additional funding. As a result, there is a

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

substantial doubt as to the Company’s ability to operate as a going concern. The Company’s ability to continue as a going concern will require it to obtain additional funding, generate positive cash flow from operations and/or enter into strategic alliances or sell assets.

Management’s plans to address these conditions include pursuing one or more of the following options to secure additional funding, none of which can be guaranteed or is entirely within its control, (i) raise funds through additional sales of ordinary shares, through equity sales agreements with brokers/dealers or other public or private equity financings, (ii) raise funds through borrowings under existing debt facilities and/or convertible debt, and/or (iii) raise non-dilutive funds through product collaborations and/or to partner or sell a portion or all rights to any of the Company’s assets.

There can be no assurance that the Company will receive cash proceeds from any of these potential sources or, to the extent cash proceeds are received, such proceeds would be sufficient to support its current operating plan for at least the next 12 months from the date the accompanying unaudited condensed consolidated financial statements are issued. The sale of additional equity or convertible debt securities may result in additional dilution to the Company’s shareholders. If the Company raises additional funds through the issuance of debt securities or preferred shares, these securities could provide for rights senior to those of its ordinary shares and could contain covenants that would further restrict its operations. Additional funds may not be available when the Company needs them, on terms that are acceptable to it, or at all.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business, and therefore do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

Note 4. Discontinued Operations

On August 27, 2021, the Company announced the closing of the divestiture of its Legacy Business to certain affiliates of Alora for $111 million in cash upon closing, subject to certain post-closing adjustments, and up to $60 million in additional contingent milestone payments. During the three months ended March 31, 2022, the Company received an aggregate of $5.0 million in cash from Alora related to contingent milestone payments earned in connection with the sale of the Legacy Business, such income was recognized and classified within other non-operating income, net in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

The Company has determined the divestiture of the Legacy Business represents a strategic shift that will have a major effect on its business and therefore met the criteria for classification as discontinued operations. Accordingly, the Legacy Business is reported as discontinued operations in accordance with Accounting Standards Codification 205-20, Discontinued Operations. The results of operations from the Legacy Business are classified as discontinued operations in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. Applicable amounts in prior periods have been recast to conform to this discontinued operations presentation. The Company recognized a gain on the sale of the Legacy Business upon closing.

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The following table presents the results of discontinued operations (in thousands):

Three Months Ended

March 31, 2021

Total revenues

$

22,945

Cost of goods sold (inclusive of depreciation and amortization)

 

12,810

Selling, general and administrative expenses

 

1,970

Research and development expenses

1,106

Income from operations

 

7,059

Interest expense and amortization of debt discount

2,439

Other non-operating income, net

(79)

Income from discontinued operations before provision for income taxes

 

4,699

Income tax expense

539

Income from discontinued operations, net of tax

$

4,160

The following table presents the significant non-cash items and purchases of property, plant and equipment for the discontinued operations that are included in the accompanying unaudited condensed consolidated statements of cash flows (in thousands):

Three Months Ended

Cash flows from operating activities:

March 31, 2021

Depreciation and amortization

$

3,309

Share compensation

103

Cash flows from investing activities:

Purchases of property, plant and equipment

$

314

Note 5. Revenues

The Company’s performance obligations are to provide its pharmaceutical products based upon purchase orders from customers. The performance obligation is satisfied at a point in time, typically upon delivery, when the customer obtains control of the pharmaceutical product. The Company collects payments in advance from its customers.

The following table presents disaggregated revenues from contracts with customers (in thousands):

Three Months Ended March 31, 

    

2022

    

2021

    

Net product sales - Upneeq

$

5,944

$

773

Royalty and licensing revenue

 

15,500

162

Total revenues

$

21,444

$

935

On July 28, 2020, the Company entered into a License Agreement with Santen Pharmaceutical Co. Ltd (“Santen”), granting Santen exclusive development, registration, and commercialization rights to RVL-1201 in Japan, China, and other Asian countries as well as Europe, the Middle East and Africa (“EMEA”) countries (the “License Agreement”). Under the License Agreement the Company is entitled to certain development and regulatory milestone payments. The Company is also entitled to royalty payments on net sales of RVL-1201 in Santen commercialization territories.

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

On March 29, 2022, RVL Pharmaceuticals entered into the First Amendment to License Agreement (the “Amendment”) with Santen, amending the License Agreement. Under the terms of the Amendment, effective March 31, 2022, RVL Pharmaceuticals is entitled to receive an upfront cash payment of $15.5 million, and the remaining developmental and regulatory cash milestone payments, were removed. Pursuant to the terms of the Amendment, new developmental and regulatory cash milestone payments with an aggregate value of up to $1.0 million will be payable to RVL Pharmaceuticals. In addition, the territories were expanded to include additional EMEA countries and Canada, and during the first five years following the effective date of the Amendment, Santen was granted an option to expand the territories to include Russia, subject to additional upfront and milestone payments of $2.0 million and $1.0 million, respectively. Further, under the terms of the Amendment, if RVL Pharmaceuticals desires to enter into an agreement to license certain rights related to the License Agreement to a third party in Russia, then Santen will have a right to exercise an option to expand the territories to include Russia or to match the terms of the agreement with the third party.

During the three months ended March 31, 2022, the Company recognized $15.5 million as license revenue as all performance obligations were met, and the related receipt of cash from Santen occurred in April 2022 (see Note 6).

When the Company receives consideration from a customer, or such consideration is unconditionally due from a customer prior to the transfer of products to the customer under the terms of a contract, the Company records a contract liability. The Company classifies contract liabilities as deferred revenue. The Company had deferred revenue of $0.8 million at March 31, 2022 and an immaterial amount at December 31, 2021.

Contract assets primarily relate to rights to consideration for goods or services transferred to the customer when the right is conditional on something other than the passage of time. Contract assets are transferred to accounts receivable when the rights become unconditional. The Company generally does not incur costs to obtain or fulfill contracts meeting the capitalization criteria under ASC Topic 340, Other Assets and Deferred Costs. The Company had no contract assets at March 31, 2022 or December 31, 2021.

The following table presents the various adjustments recognized against gross product sales (in thousands):

Three Months Ended March 31, 

    

2022

    

2021

Gross product sales

$

6,027

$

773

Less provisions for:

 

Chargebacks

 

(1)

Discounts and allowances

 

(82)

Net product sales

$

5,944

$

773

Note 6. Other Receivables

The following table presents the components of other receivables (in thousands):

    

March 31, 

    

December 31,

2022

2021

Milestone receivable

$

15,500

$

Other receivable

 

2,072

 

2,133

Total other receivables

$

17,572

$

2,133

Other receivables result primarily from payroll retention credits and other miscellaneous activities.

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Note 7. Accrued Liabilities

The following table presents the components of accrued liabilities (in thousands):

    

March 31, 

    

December 31,

2022

2021

Accrued expenses and other liabilities

$

6,871

$

7,897

Accrued compensation

5,624

4,504

Accrued research and development

356

409

Accrued royalties

 

718

 

200

Deferred revenue

 

776

 

67

Total accrued liabilities

$

14,345

$

13,077

Note 8. Financing Arrangements

The following table presents the components of long-term debt and financing obligations (in thousands):

    

March 31, 

December 31,

2022

2021

Senior Secured Notes (measured at fair value)

$

45,100

$

43,800

Note payable — insurance financing

 

1,512

 

2,409

Total debt and financing obligations

 

46,612

 

46,209

Less: current portion of debt

 

(1,512)

 

(2,409)

Long-term debt

$

45,100

$

43,800

The following table presents the aggregation of principal maturities of long-term debt and financing obligations (in thousands):

Year Ending December 31,

    

Debt Obligations

Remainder of 2022

$

1,512

2023

 

2024

 

11,000

2025

11,000

2026

33,000

Total future minimum payments

56,512

Less: current portion of debt principal

(1,512)

Non-current portion of debt principal

$

55,000

Senior Secured Notes

On October 1, 2021, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with, among others, Athyrium Opportunities IV Acquisition 2 LP (“Purchaser”) providing for the issuance of senior secured notes in three separate tranches (the “Senior Secured Notes”). On October 12, 2021, the Company issued $55.0 million first tranche notes, a portion of the proceeds of which, together with the proceeds from a concurrent underwritten equity offering, were used to repay in full the obligations under a prior credit agreement.

Prior to October 12, 2022, upon satisfaction of certain conditions, including a minimum net product sales target for Upneeq over a specified period of time, the Company may request second tranche notes of up to $20.0 million. Prior to October 12, 2023, the Company may request third tranche notes of up to $25.0 million, in the sole discretion of the Purchaser.

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The Senior Secured Notes bear interest at an annual rate of 9.0% plus adjusted three-month LIBOR, with a LIBOR floor of 1.50% and LIBOR cap of 3.00%, payable in cash quarterly in arrears. At March 31, 2022, the interest rate applicable to the Senior Secured Notes was 10.5%.

In addition, the restrictive covenants in the Note Purchase Agreement require the Company to comply with certain minimum liquidity requirements and minimum quarterly product sales requirements. At any time, the Company is required to maintain unrestricted cash and cash equivalents greater than or equal to $15.0 million, and, as of the end of each fiscal quarter, it is required to maintain consolidated Upneeq net product sales greater than or equal to specified quarterly thresholds (beginning at $3.0 million for the quarter ending March 31, 2022, and increasing in $1.0 million increments each quarter thereafter until the quarter ending June 30, 2024, for which quarter and all subsequent quarters the threshold is $12.0 million). At March 31, 2022, the Company was in compliance with all conditions of the Note Purchase Agreement.

During the year ended December 31, 2021, the Company incurred aggregate debt issuance costs of $2.1 million related

to the Senior Secured Notes, $1.5 million and $0.6 million of which were recognized as financial commitment assets

underlying the first and second tranche notes, respectively.

The Company elected the fair value option of accounting on the senior secured notes upon issuance and, accordingly, a proportionate amount of related debt issuance costs were immediately written off. The Company’s residual financial commitment asset related to the undrawn second tranche notes, is being amortized over the relevant one-year commitment period. During the three months ended March 31, 2022, the Company recognized $1.0 million of amortization expense from the second tranche financial commitment asset with such expense being recorded within interest expense and amortization of debt discount in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. At March 31, 2022 and December 31, 2021, the second tranche financial commitment asset had a carrying value of $2.1 million and $3.1 million, respectively, and was recorded within current assets in the accompanying unaudited condensed consolidated balance sheets. If the second tranche notes are drawn within the one-year commitment period, the Company will expense the remaining balance under the fair value option of accounting.

On a recurring basis, changes in fair value of Senior Secured Notes will be presented in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss at each reporting period (see Note 13).

In the three months ended March 31, 2022, the Company obtained waivers from the Purchaser of mandatory repayments of an aggregate of $5.0 million in principal of the Senior Secured Notes as otherwise required under the Note Purchase Agreement, in exchange for a consent fee of $0.2 million, resulting in net retained proceeds of $4.8 million.

Note 9. Share-Based Compensation

The following table presents the components of share-based compensation expense (in thousands):

Three Months Ended March 31, 

    

2022

    

2021

Share options

$

550

$

101

Performance stock units

225

Restricted stock units

616

729

Employee share purchase plan

43

19

Total share-based compensation expense

$

1,209

$

1,074

At March 31, 2022, aggregate unrecognized share compensation expense related to unvested awards was $7.0 million which is expected to be recognized over a weighted-average remaining service period of 1.86 years.

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Note 10. Earnings (Loss) Per Ordinary Share

The following potentially dilutive securities have been excluded from the weighted average ordinary shares outstanding in the computation of diluted earnings (loss) per share because the impact of including them would have been anti-dilutive:

Three Months Ended March 31, 

    

2022

    

2021

Performance and restricted stock units

1,900,052

2,545,483

Share options to purchase ordinary shares

637,778

2,864,016

Warrants to purchase ordinary shares

16,100,000

Ordinary shares to be purchased through employee stock purchase plan

214,366

28,227

Note 11. Commitments and Contingencies

Legal Proceedings

The Company is a party in legal proceedings and potential claims arising from time to time in the ordinary course of its business. The amount, if any, of ultimate liability with respect to such matters cannot be determined. Despite the inherent uncertainties of litigation, management of the Company believes that the ultimate disposition of such proceedings and exposures will not have a material adverse impact on the financial condition, results of operations, or cash flows of the Company.

On February 16, 2018, the Company received FDA approval for its amantadine extended release tablets under the trade name Osmolex ER and filed a Complaint for Declaratory Judgment of Noninfringement of certain patents owned by Adamas Pharmaceuticals, Inc., who filed counterclaims against the Company. On December 2, 2020, the Company entered into an agreement to settle the litigation with Adamas, under which both parties agreed to drop their respective claims relating to the patent litigation, and Adamas agreed to acquire the global rights to Osmolex ER from the Company for $7.5 million. The sale of the global rights to Osmolex ER closed in January 2021 and a gain of $5.6 million was recorded in the unaudited condensed consolidated statements of operations and comprehensive loss under gain on sale of product rights, net.

Note 12. Income Taxes

The following table presents the relationship between income tax expense or benefit from continuing operations and income or loss before income taxes from continuing operations (dollars in thousands):

Three Months Ended March 31, 

2022

    

2021

Loss before income taxes, continuing operations

$

(6,896)

$

(13,776)

Income tax benefit, continuing operations

(75)

(4)

Effective income tax rate

1.09

%

0.03

%

Income tax expense or benefit in the quarterly periods is based upon the estimated income or loss for the full year. The composition of the income or loss in different jurisdictions and adjustments, if any, in the applicable quarterly periods influences the periodic expense or benefit.

The relationship between pre-tax income or loss and income tax expense or benefit is greatly affected by the impact of losses for which management cannot claim a tax benefit, non-deductible expenses, and other items that increase tax

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

expense without a relationship to income, such as withholding taxes and changes with respect to uncertain tax positions. The increase in the effective income tax rate in the three months ended March 31, 2022 when compared to the three months ended March 31, 2021, is primarily related to our recognition of a benefit relating to a foreign tax refund unique to the 2022 period.

Note 13. Financial Instruments and Fair Value Measurements

The Company’s financial instruments subject to fair value measurements include cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued liabilities, long-term debt and warrant liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial Assets - Cash and cash equivalents, generally consisting of investments in interest-bearing money market accounts, are measured at fair value on a recurring basis using Level 1 measurements. Fair value inputs for these investments are considered Level 1 measurements within the fair value hierarchy because money market account fair values are known and observable through daily published floating net asset values. The fair value of the Company’s cash and cash equivalents, being the same as their carrying value, were $26.3 million and $40.4 million at March 31, 2022 and December 31, 2021, respectively.

Financial Liabilities— The Senior Secured Notes, a material component of long-term debt (see Note 8), and our warrant liabilities, a material component of total liabilities have each been measured and carried at fair value since their issuance in October 2021. Such instruments represent financial liabilities whose measurement contains significant unobservable inputs, which management considers to be Level 3 measurements under the fair value hierarchy.

The Company uses a discounted cash flow technique, an income-based approach, to determine the fair value of the Senior Secured Notes. This technique relies upon an assumption of pricing the Senior Secured Notes to their maturity (without mandatory or voluntary prepayments) and incorporates inputs such as contractual repayment terms, maturity, and discount rate. The most significant unobservable input for the Senior Secured Notes is the discount rate which is estimated by performing a yield analysis that relies upon the discount rate observed in the initial issuance of the Senior Secured Notes as well as certain benchmark debt instruments with observable pricing from which conclusions are drawn on the change in the discount rate from period to period.

The Company uses the Black-Scholes Merton option-pricing model to value the warrants. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, and volatility. The most significant unobservable input for the warrant liabilities is volatility. Given the limited trading volume and period of time the Company’s stock has been traded in an active market, the expected volatility is estimated by taking the average historical price volatility for industry peers, consisting of several public companies in the Company’s industry that are similar in size, stage, or financial leverage, over a period of time commensurate to the expected term of the warrants.

The following tables show financial liabilities subject to fair value measurement on a recurring basis and related information on fair values, valuation techniques and unobservable inputs (dollars in thousands):

At March 31, 2022

Financial Instrument

Fair Value

Valuation Technique

Unobservable Inputs

Senior Secured Notes

$

(45,100)

Income Approach - DCF

Discount rate

18.4

%

Term (in years)

4.5

Warrants

$

(7,728)

Black-Scholes Merton

Equity volatility

65.0

%

Term (in years)

3.0

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

At December 31, 2021

Financial Instrument

Fair Value

Valuation Technique

Unobservable Inputs

Senior Secured Notes

$

(43,800)

Income Approach - DCF

Discount rate

17.9

%

Term (in years)

4.8

Warrants

$

(3,220)

Black-Scholes Merton

Equity volatility

65.0

%

Term (in years)

3.3

The following table shows changes in the fair value of financial liabilities subject to Level 3 fair value measurements on a recurring basis (in thousands):

Senior Secured Notes

Warrants

Balance, At December 31, 2021

$

(43,800)

$

(3,220)

Cash payments for interest

1,444

-

Fair value adjustments through earnings (inclusive of related accrued interest expense)

(1,044)

(4,508)

Fair value adjustments through accumulated other comprehensive income or loss

(1,700)

-

Balance, At March 31, 2022

$

(45,100)

$

(7,728)

Changes in the fair value of debt that is accounted for at fair value, inclusive of related accrued interest expense, are presented as gains or losses in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss under change in fair value of debt and interest expense. The portion of total changes in fair value of debt attributable to changes in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of comprehensive income or loss in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

No financial liabilities were subject to fair value measurements on a recurring basis prior to October 2021.

Assets and Liabilities for Which Fair Value is Only Disclosed

The carrying amounts for trade accounts receivable, trade accounts payable, accrued liabilities and the residual amounts of long-term debt not otherwise measured at fair value on a recurring basis approximate their relative fair values due to their short-term nature with relevant inputs considered Level 2 measurements within the fair value hierarchy.

Note 14. Subsequent Events

In April 2022, as part of an initiative to refine the Company’s go to market strategy, the Company recognized an aggregate of $1.9 million in expenses primarily associated with employee severance benefits.

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

The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” You should read the following discussion together with our audited consolidated financial statements, and related notes thereto, appearing in our Annual Report on Form 10-K and our unaudited condensed consolidated financial statements, and related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements. This discussion and analysis is based upon the historical financial statements of RVL Pharmaceuticals plc and subsidiaries. All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31.

Overview

We are a specialty pharmaceutical company focused on the development and commercialization of products that target markets with underserved patient populations. In July 2020, we received regulatory approval from the FDA for RVL-1201, or Upneeq, (oxymetazoline hydrochloride ophthalmic solution), 0.1%, for the treatment of acquired blepharoptosis, or droopy or low-lying eyelids in adults. Upneeq was commercially launched in September 2020 to a limited number of eye care professionals with commercial operations expanded in 2021 among ophthalmology, optometry and oculoplastic specialties. In February 2022, Upneeq was commercially expanded into the medical aesthetics market. We believe Upneeq is the first non-surgical treatment option approved by the FDA for acquired blepharoptosis.

On August 27, 2021, we announced the closing of the divestiture of our portfolio of branded and non-promoted products and our Marietta, Georgia, manufacturing facility (the “Legacy Business”) to certain affiliates of Alora Pharmaceuticals (“Alora”) for $111 million in cash upon closing, subject to certain adjustments, and up to $60 million in additional contingent milestone payments (the “Transaction”). Pursuant to the Transaction, we retained the rights to Upneeq and to arbaclofen extended release (“ER”) tablets, which is under development for the treatment of spasticity in multiple sclerosis. As a result, our business is now primarily focused on the commercialization and development of Upneeq. Following the Transaction, on January 17, 2022 we formally changed our name to RVL Pharmaceuticals plc.

With the divestiture of the Legacy Business, our commercial operations are conducted by our wholly-owned subsidiaries, RVL Pharmaceuticals, Inc. and RVL Pharmacy, LLC (“RVL Pharmacy”). RVL Pharmacy operates pharmacy operations dedicated to the processing and fulfillment of prescriptions for Upneeq.

Business Update Regarding COVID-19

The COVID-19 pandemic has adversely affected global economies, financial markets and the overall environment in which we do business as further described in Part II, Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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Results of Operations

Comparison of Three Months Ended March 31, 2022 and 2021

Financial Operations Overview

The following table presents revenues and expenses for the periods indicated (dollars in thousands):

Three Months Ended March 31, 

 

    

2022

    

2021

    

% Change

 

Net product sales

$

5,944

$

773

 

669

%

Royalty and licensing revenue

 

15,500

 

162

 

9,468

%

Total revenues

 

21,444

 

935

 

2,193

%

Cost of goods sold

 

2,144

 

679

 

216

%

Gross profit

19,300

256

 

7,439

%

Gross profit percentage

 

90

%  

 

27

%  

Selling, general and administrative expenses

 

23,834

 

16,952

 

41

%

Research and development expenses

 

862

 

2,204

 

(61)

%

Total operating expenses

 

24,696

 

19,156

 

29

%

Gain on sales of product rights, net

5,636

(100)

%

Operating loss

(5,396)

(13,264)

(59)

%

Interest expense and amortization of debt discount

 

985

 

521

 

89

%

Change in fair value of debt and interest expense

1,044

NM

%

Change in fair value of warrants

4,508

NM

%

Other non-operating income, net

 

(5,037)

 

(9)

 

55,867

%

Total other non-operating expense

 

1,500

 

512

 

193

%

Loss before income taxes

 

(6,896)

 

(13,776)

 

(50)

%

Income tax benefit, continuing operations

 

(75)

 

(4)

 

1,775

%

Loss from continuing operations

(6,821)

(13,772)

(50)

%

Income from discontinued operations before income taxes

4,699

(100)

%

Income tax expense, discontinued operations

539

(100)

%

Income from discontinued operations, net of tax

4,160

(100)

%

Net loss

$

(6,821)

$

(9,612)

 

(29)

%

NM-Not Meaningful

Revenue

The following table presents total revenues for the periods indicated (dollars in thousands):

Three Months Ended March 31, 

 

    

2022

    

2021

    

% Change

 

Net product sales - Upneeq

$

5,944

$

773

669

%

Royalty and licensing revenue

 

15,500

 

162

 

9,468

%

Total revenues

$

21,444

$

935

 

2,193

%

Total Revenues — Total revenues increased by $20.5 million to $21.4 million in the three months ended March 31, 2022, as compared to $0.9 million in the three months ended March 31, 2021, primarily due to $15.5 million licensing revenue from Santen recognized during the 2022 period and further attributable to a $5.1 million year over year increase in net product sales of Upneeq.

Net Product Sales — Net product sales, relating entirely to sales of Upneeq, increased by $5.1 million to $5.9 million in the 2022 period, as compared to $0.8 million in the 2021 period. The increase in net product sales was primarily

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attributable to a year over year increase in sales volume reflecting expanded commercialization into eyecare markets and, effective February 2022, the medical aesthetics market.

Royalty and Licensing Revenue Licensing revenue increased by $15.3 million during the 2022 period, primarily due to $15.5 million recognized under our license agreement with Santen. Refer to Note 5, “Revenues” of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on our License Agreement with Santen.

Cost of Goods Sold and Gross Profit Percentage

The following table presents a breakdown of total cost of goods sold for the periods indicated (dollars in thousands):

Three Months Ended March 31, 

 

    

2022

    

2021

    

% Change

 

Royalty expense

 

$

718

 

$

59

1,117

%

Depreciation expense

 

14

 

16

 

(13)

%

Other costs of goods sold

 

1,412

 

604

 

134

%

Total costs of goods sold

$

2,144

$

679

 

216

%

Total cost of goods sold increased $1.4 million in the three months ended March 31, 2022 to $2.1 million, as compared to $0.7 million in the three months ended March 31, 2021. The year over year increase in cost of goods sold was primarily driven by $0.8 million in higher product costs for Upneeq due to, higher sales volume, and by $0.6 million relating to increased royalties and contingent milestone payments due under an intellectual property license agreement, each attributable to sales of Upneeq.

Gross profit percentage increased to 90% for the three months ended March 31, 2022 compared to 27% in the 2021 period, largely due to unique licensing revenue from Santen recognized during the 2022 period. Excluding licensing revenues, gross profit percentage from net product sales was 64% in the 2022 period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $6.8 million in the three months ended March 31, 2022 to $23.8 million as compared to $17.0 million in the three months ended March 31, 2021. The year over year increase in selling, general and administrative expenses was primarily influenced by $6.8 million in higher compensation and training costs for our expanded salesforce, $0.7 million of higher marketing expenses for Upneeq, and $0.7 million of transactional fees unique to the 2022 period, partially offset by approximately $1.1 million of lower fees for legal and other professional fees.

Selling, general and administrative expenses include non-cash share-based compensation expenses of $1.1 million and $0.9 million in the three months ended March 30, 2022 and 2021, respectively. The year over year increase in share compensation expense reflects new share option awards issued to directors and employees in the 2022 period.

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Research and Development Expenses

The following table summarizes our research and development (“R&D”) expenses incurred for the periods indicated (dollars in thousands):

Three Months Ended March 31, 

 

    

2022

    

2021

    

% Change

 

Arbaclofen ER

$

52

$

384

(86)

%

RVL-1201 (Upneeq)

25

197

(87)

%

Other research and development

 

785

 

1,623

(52)

%

Total research and development expenses

$

862

$

2,204

(61)

%

R&D expenses decreased by $1.3 million in the three months ended March 31, 2022 to $0.9 million, as compared to $2.2 million in the three months ended March 31, 2021. The year over year decrease in R&D expenses primarily reflects $0.6 million in lower personnel costs and $0.5 million in lower project spending on arbaclofen ER and Upneeq in the 2022 period.

R&D expenses include non-cash share-based compensation expenses of $0.2 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively.

Gain on Sale of Product Rights, Net

On December 2, 2020, we entered into an agreement to settle certain litigation. Under the terms of an agreement, we agreed to convey the global rights to Osmolex ER for $7.5 million. The sale of the global rights to Osmolex ER closed in January 2021 resulting in our recognition of a $5.6 million gain.

Interest Expense and Amortization of Debt Discount

Interest expense and amortization of debt discount increased by $0.5 million in the three months ended March 31, 2022 to $1.0 million as compared to $0.5 million in the three months ended March 31, 2021. The year over year increase is attributable to our recognition of $0.9 million of amortization expense from the second tranche financial commitment asset, unique to the 2022 period, partially offset by the absence of interest expense in the 2022 period.

Beginning in the fourth quarter of 2021, our recognition of interest expense on our senior secured notes is classified within the separate caption titled “Change in fair value of debt and interest expense” pursuant to our elections related to fair value accounting (see “Change in Fair Value of Debt and Interest Expense and Change in Fair Value of Warrants” section below).

Refer to Note 8, “Financing Arrangements,” of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on our indebtedness.

Change in Fair Value of Debt and Interest Expense and Change in Fair Value of Warrants

Changes in the fair value of our senior secured notes and warrants, each issued in October 2021, resulted in losses of $1.0 million and $4.5 million, respectively, in the three months ended March 31, 2022. Changes in the fair value of our senior secured notes includes $1.4 million of related interest expense.

Refer to Note 13, “Financial Instruments and Fair Value Measurements,” of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on our recurring fair value measurements.

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Other Non-operating Income, Net

Other non-operating income, net was $5.0 million and less than $0.1 million in the three months ended March 31, 2022 and 2021, respectively. Non-operating income in the 2022 period was attributable to our receipt of an aggregate of $5.0 million in cash from Alora related to contingent milestone payments earned in connection with the sale of the Legacy Business.

Refer to Note 4, “Discontinued Operations,” of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on the Alora contingent milestone payments.

Income Tax Benefit (Expense)

The following table summarizes our income tax benefit from continuing operations and the resultant effective income tax rate for the periods indicated (dollars in thousands):

Three Months Ended March 31, 

2022

    

2021

Loss before income taxes, continuing operations

$

(6,896)

$

(13,776)

Income tax benefit, continuing operations

(75)

(4)

Effective income tax rate

1.09

%

0.03

%

The increase in effective income tax rate in the three months ended March 31, 2022 when compared to the three months ended March 31, 2021, is primarily related to our recognition of a benefit relating to a foreign tax refund unique to the 2022 period.

Refer to Note 12, “Income Taxes,” of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on income taxes.

Discontinued Operations

For the three months ended March 31, 2021 we recognized income from discontinued operations, net of tax of $4.2 million.

Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents and borrowings available under our Note Purchase Agreement, dated October 1, 2021, with Athyrium Opportunities IV Acquisition LP, as administrative agent, and Athyrium Opportunities IV Acquisition 2 LP, as the Purchaser. At March 31, 2022, we had cash and cash equivalents of $26.3 million and total debt obligations with aggregate principal amounts of $56.5 million including an aggregate principal amount of $55.0 million of long-term debt, the maturities of which commence in March 2024 and extend through October 2026. Our primary uses of cash are to fund operating expenses, including commercialization costs associated with Upneeq, capital expenditures, and debt service payments.

The Note Purchase Agreement provides for the issuance of the notes to the Purchaser in an aggregate principal amount of up to $100.0 million in three separate tranches. The first tranche of notes was issued in an aggregate principle amount equal to $55.0 million on October 12, 2021. At any time after October 12, 2021 but prior to the first anniversary thereof, upon the satisfaction of certain conditions, including a minimum liquidity requirement and minimum net product sales target for Upneeq, we may request the issuance of the second tranche notes in an aggregate principal amount of up to $20.0 million. At any time after October 12, 2021 but prior to the second anniversary thereof, we may request the issuance of the third tranche notes in an aggregate principal amount of up to $25.0 million, which shall be funded in the sole discretion of the Purchaser. The minimum net product sales target for Upneeq is $3.0 million for the quarter ending March 31, 2022, and increasing in $1.0 million increments each quarter thereafter until the quarter ending June 30, 2024, for which quarter and all subsequent quarters the threshold is $12.0 million. The minimum liquidity requirement

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under the Note Purchase Agreement requires us to maintain, at any time, unrestricted cash and cash equivalents greater than or equal to $15.0 million.

As of March 31, 2022, the interest rate on our Notes was 10.50%.

Going Concern

At March 31, 2022, we had cash and cash equivalents of $26.3 million, an accumulated deficit of $524.4 million, and total long-term debt with aggregate principal maturities of $55.0 million, with such maturities commencing in March 2024 and extending through October 2026. In addition, our primary indebtedness contains various restrictive covenants including minimum liquidity and minimum quarterly product sales requirements. For the three months ended March 31, 2022 and 2021, we incurred net losses from continuing operations of $6.8 million and $13.8 million, respectively. For the three months ended March 31, 2022, we used $13.3 million in cash for operating activities.

The divestiture of the Legacy Business in 2021 resulted in the loss of substantially all of our revenue generating assets. Our current business plan is focused on the continued launch and commercialization of Upneeq, which has and will continue to diminish our cash flows in at least the near term. We will require additional capital to fund our operating needs, including the expanded commercialization of Upneeq and other activities. We expect to incur significant expenditures and sustained operating losses for the foreseeable future.

Our management does not believe that current sources of liquidity will be sufficient to fund our planned expenditures and meet our obligations for at least 12 months following the date the accompanying unaudited condensed consolidated financial statements are issued without raising additional funding. As a result, there is a substantial doubt as to our ability to operate as a going concern. Our ability to continue as a going concern will require us to obtain additional funding, generate positive cash flow from operations and/or enter into strategic alliances or sell assets.

Our plans to address these conditions include pursuing one or more of the following options to secure additional funding, none of which can be guaranteed or is entirely within our control, (i) raise funds through additional sales of ordinary shares, through equity sales agreements with brokers/dealers or other public or private equity financings, (ii) raise funds through borrowings under existing debt facilities and/or convertible debt, and/or (iii) raise non-dilutive funds through product collaborations and/or to partner or sell a portion or all rights to any of our assets.

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There can be no assurance that we will receive cash proceeds from any of these potential sources or, to the extent cash proceeds are received, such proceeds would be sufficient to support our current operating plan for at least the next 12 months from the date the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are issued. The sale of additional equity or convertible debt securities may result in additional dilution to our shareholders. If we raise additional funds through the issuance of debt securities or preferred shares, these securities could provide for rights senior to those of our ordinary shares and could contain covenants that would further restrict our operations. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all.

The accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business, and therefore do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

Cash Flows

The following table provides information regarding our cash flows, including our continuing operations and discontinued operations, for the periods indicated (in thousands):

Three Months Ended March 31, 

    

2022

    

2021

    

$ Change

    

Net cash used in operating activities

$

(13,276)

$

(11,486)

$

(1,790)

Net cash provided by investing activities

 

10

6,881

 

(6,871)

Net cash used in financing activities

 

(837)

(236)

 

(601)

Net decrease in cash and cash equivalents

$

(14,103)

$

(4,841)

$

(9,262)

Net cash from operating activities

Cash flows from operating activities are primarily driven by earnings from operations (excluding the impact of non-cash items), the timing of cash receipts and disbursements related to accounts receivable and accounts payable and the timing of inventory transactions and changes in other working capital amounts. Net cash used in operating activities was $13.3 million for the three months ended March 31, 2022, and net cash used in operating activities was $11.5 million for the three months ended March 31, 2021.

The additional cash used in operating activities during the 2022 period, was primarily a result of higher net cash used to fund working capital assets and liabilities partially offset by higher net income after considering non-cash adjustments as compared to the 2021 period.

Net cash from investing activities

Net cash provided by investing activities was less than $0.1 million for the three months ended March 31, 2022 as compared to $6.9 million of cash provided for the three months ended March 31, 2021. The year over year change in investing cash flows is primarily attributable to proceeds of $7.3 million from the sale of Osmolex product rights in January 2021 unique to the 2021 period, partially offset by significantly lower purchases of property, plant and equipment in the 2022 period.

Net cash from financing activities

Net cash used in financing activities was $0.8 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively. The year over year change in financing cash flows largely reflects the prepayment of insurance financing loans of $0.9 million, unique to the 2022 period.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes to the disclosures about market risk included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Item 4. Controls and Procedures

Our principal executive officer and our principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2022, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The information under the caption entitled “Legal Proceedings” set forth in Note 11, “Commitments and Contingencies,” in the accompanying notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors.

There have been no material changes from the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2021.

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Item 6. Exhibits.

EXHIBIT 10.1

-

Amendment to License Agreement, effective as of March 31, 2022, by and between RVL Pharmaceuticals, Inc. and Santen Pharmaceutical Co. Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 4, 2022, Commission File No. 001-38709)

EXHIBIT 31.1

-

Principal Executive Officer and Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a—14 and 15d—14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

EXHIBIT 32.1

-

Principal Executive Officer and Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EXHIBIT 101.INS

-

Inline XBRL Instance Document.

EXHIBIT 101.SCH

-

Inline XBRL Taxonomy Extension Schema Document.

EXHIBIT 101.CAL

-

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

EXHIBIT 101.DEF

-

Inline XBRL Taxonomy Extension Definition Linkbase Document.

EXHIBIT 101.LAB

-

Inline XBRL Taxonomy Extension Label Linkbase Document.

EXHIBIT 101.PRE

-

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

EXHIBIT 104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)

&#