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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 September 30, 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 99,153,744 ordinary shares ($0.01 nominal value per share) outstanding as of November 09, 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" section 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 – September 30, 2022 and December 31, 2021

5

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss – Three and Nine Months Ended September 30, 2022 and 2021

6

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity – Three and Nine Months Ended September 30, 2022 and 2021

7

Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 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.

22

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

32

ITEM 4. Controls and Procedures.

32

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

32

ITEM 1A. Risk Factors.

33

ITEM 6. Exhibits.

34

SIGNATURES

35

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)

    

September 30, 2022

    

December 31, 2021

    

Assets

 

  

 

  

 

Current assets:

 

  

 

  

 

Cash and cash equivalents

$

59,752

$

40,444

Accounts receivable and other receivables

 

3,280

 

2,133

Inventories, net

 

621

 

838

Prepaid expenses and other current assets

 

7,261

 

12,901

Financial commitment asset

3,063

Total current assets

 

70,914

 

59,379

Property, plant and equipment, net

 

676

 

866

Operating lease assets

708

1,368

Indefinite-lived intangible assets

 

27,210

 

27,210

Goodwill

 

55,847

 

55,847

Total assets

$

155,355

$

144,670

Liabilities and Shareholders' Equity

 

  

 

  

Current liabilities:

 

  

 

  

Trade accounts payable

$

7,003

$

3,777

Accrued liabilities

 

13,949

 

13,077

Current portion of debt

2,409

Current portion of obligations under finance leases

10

5

Current portion of lease liability

510

839

Income taxes payable - current portion

 

12

 

1

Total current liabilities

 

21,484

 

20,108

Long-term debt (measured at fair value and representing $75,000 and $55,000 of aggregate unpaid principal at September 30, 2022 and December 31, 2021, respectively)

 

55,900

 

43,800

Warrant liability

8,926

3,220

Long-term portion of obligations under finance leases

 

20

 

Long-term portion of lease liability

220

592

Income taxes payable - long term portion

 

70

 

66

Deferred taxes

 

189

 

151

Total liabilities

 

86,809

 

67,937

Commitments and contingencies (see Note 12)

 

  

 

  

Shareholders' equity:

 

  

 

  

Ordinary shares ($0.01 nominal value, 400,000,000 shares authorized, 99,151,706 and 83,297,567 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)

992

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

618,457

591,730

Accumulated deficit

(550,903)

(517,530)

Accumulated other comprehensive income

 

 

1,700

Total shareholders' equity

 

68,546

 

76,733

Total liabilities and shareholders' equity

$

155,355

$

144,670

See accompanying notes to unaudited condensed consolidated financial statements.

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RVL PHARMACEUTICALS PLC

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

    

  

  

  

  

Net product sales

$

10,022

$

2,196

$

24,414

$

4,451

Royalty revenue

 

 

 

 

190

Licensing revenue

 

 

 

15,500

 

10,000

Total revenues

 

10,022

 

2,196

 

39,914

 

14,641

Cost of goods sold

 

2,525

1,147

 

6,896

 

2,535

Gross profit

 

7,497

 

1,049

 

33,018

 

12,106

Selling, general and administrative expenses

 

20,375

24,841

64,378

63,769

Research and development expenses

 

1,044

1,376

3,082

5,789

Impairment of intangible assets

7,880

Total operating expenses

 

21,419

 

26,217

 

67,460

 

77,438

Operating loss before gain on sales of product rights, net

 

(13,922)

 

(25,168)

 

(34,442)

 

(65,332)

Gain on sales of product rights, net

5,636

Operating loss

(13,922)

(25,168)

(34,442)

(59,696)

Interest expense and amortization of debt discount

 

1,132

735

 

3,095

 

1,750

Change in fair value of debt and interest expense

(5,061)

(4,757)

Change in fair value of warrants

4,653

5,706

Other non-operating (income) expense, net

 

(263)

120

 

(5,378)

 

1,312

Total other non-operating expense (income)

 

461

 

855

 

(1,334)

 

3,062

Loss before income taxes

 

(14,383)

 

(26,023)

 

(33,108)

 

(62,758)

Income tax expense, continuing operations

 

63

 

324

 

265

 

415

Loss from continuing operations

(14,446)

(26,347)

(33,373)

(63,173)

Gain on sales of discontinued operations

4,373

4,373

Income from discontinued operations before income taxes

3,983

14,219

Income tax (benefit) expense, discontinued operations

 

 

(132)

 

 

617

Income from discontinued operations, net of tax

8,488

17,975

Net loss

$

(14,446)

$

(17,859)

$

(33,373)

$

(45,198)

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

(1,700)

Comprehensive loss

$

(14,446)

$

(17,859)

$

(35,073)

$

(45,198)

(Loss) earnings per ordinary share:

Basic and diluted, continuing operations

$

(0.16)

$

(0.42)

$

(0.39)

$

(1.01)

Basic and diluted, discontinued operations

0.13

0.29

Basic and diluted

$

(0.16)

$

(0.28)

$

(0.39)

$

(0.72)

Weighted average ordinary shares outstanding:

 

  

 

 

  

 

Basic and diluted

 

92,756,483

62,945,898

 

86,643,040

62,798,123

See accompanying notes to unaudited condensed consolidated financial statements.

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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

Share compensation

128,931

1

1,232

1,233

Net loss

(17,727)

(17,727)

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

(249)

(249)

Balance at June 30, 2021

62,848,062

$

628

$

550,004

$

(479,949)

$

(2,229)

$

68,454

Share compensation

133,064

2

4,277

4,279

Net loss

(17,859)

(17,859)

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

(160)

(160)

Proceeds from issuance of ordinary shares, net of offering costs

146,162

1

35

36

Balance at September 30, 2021

63,127,288

$

631

$

554,156

$

(497,808)

$

(2,229)

$

54,750

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

Share compensation

102,156

1

1,207

1,208

Net loss

(12,106)

(12,106)

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

(74)

(74)

Balance at June 30, 2022

83,617,567

$

836

$

594,132

$

(536,457)

$

$

58,511

Share compensation

82,527

1

830

831

Net loss

(14,446)

(14,446)

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

(5)

(5)

Proceeds from issuance of ordinary shares, net of offering costs

15,451,612

155

23,500

23,655

Balance at September 30, 2022

99,151,706

$

992

$

618,457

$

(550,903)

$

$

68,546

See accompanying notes to unaudited condensed consolidated financial statements.

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RVL PHARMACEUTICALS PLC

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

Nine Months Ended September 30, 

    

2022

    

2021

Cash Flows from Operating Activities:

 

  

 

  

Net loss from continuing operations

$

(33,373)

$

(63,173)

Net income from discontinued operations

17,975

Net loss

(33,373)

(45,198)

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

 

 

Depreciation and amortization

 

275

 

8,068

Share compensation

3,176

6,592

Change in fair value of debt

(9,600)

Change in fair value of warrants

5,706

Impairment of intangible assets

7,880

Deferred income tax expense (benefit)

 

38

 

(180)

(Gain) loss on sale of fixed and leased assets

(350)

1,229

Gain on sales of product rights, net

(5,636)

Gain on sales of discontinued operations

(4,373)

Amortization of deferred financing and loan origination fees

3,063

746

Write off of deferred financing and loan origination fees

1,387

Financing fees recognized in earnings associated with debt

914

Change in operating assets and liabilities:

 

 

Accounts receivable and other receivables

 

(1,147)

 

4,643

Inventories, net

 

217

 

2,256

Prepaid expenses and other current and non-current assets

 

5,640

 

(3,919)

Trade accounts payable

 

3,226

 

515

Accrued and other current liabilities

 

838

 

(4,347)

Net cash used in operating activities

 

(21,377)

 

(30,337)

Cash Flows from Investing Activities:

 

  

 

Proceeds from product rights disposal

7,300

Proceeds from discontinued operations

110,845

Proceeds from sale of fixed and leased assets

350

40

Purchases of property, plant and equipment

(52)

(1,657)

Net cash provided by investing activities

 

298

 

116,528

Cash Flows from Financing Activities:

 

  

 

  

Payments on finance lease obligations

 

(6)

(35)

Payments on insurance financing loan

 

(2,409)

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

(134)

(767)

Proceeds from public offering, net of issuance costs

36

Proceeds from issuance of debt, net of issuance costs

19,090

Proceeds from issuance of ordinary shares, net of issuance costs

23,655

Proceeds from issuance of ordinary shares under ESPP

191

234

Debt repayments

(191,360)

Net cash provided by (used in) financing activities

 

40,387

 

(191,892)

Net change in cash and cash equivalents

 

19,308

 

(105,701)

Cash and cash equivalents, beginning of period

 

40,444

114,053

Cash and cash equivalents, end of period

$

59,752

$

8,352

See accompanying notes to unaudited condensed consolidated financial statements.

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RVL PHARMACEUTICALS 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 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 of 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 and nine months ended September 30, 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.

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.

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RVL PHARMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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):

Nine Months Ended September 30, 

2022

    

2021

Cash paid for:

Interest

$

4,874

$

7,166

Income taxes

$

153

$

2,060

The Company received $3.1 million in tax refunds during the nine months ended September 30, 2022 related to income taxes paid in prior periods.

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 impact to the Company’s financial position or results of operations upon adoption.

Note 3. Liquidity

At September 30, 2022, the Company had cash and cash equivalents of $59.8 million, an accumulated deficit of $550.9 million, and total long-term debt with aggregate principal maturities of $75.0 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 nine months ended September 30, 2022 and 2021, the Company incurred net losses from continuing operations of $33.4 million and $63.2 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company used $21.4 million and $30.3 million, respectively, 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 continue to incur significant expenditures and sustain operating losses in the 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 PHARMACEUTICALS 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 new and/or 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.

In August 2022, the Company raised an aggregate of $43.9 million, comprised of $23.9 million in aggregate gross proceeds from the private placement of ordinary shares (see Note 15) and, concurrently, $20.0 million from the issuance of second tranche Senior Secured Notes (see Note 8), to enhance liquidity in furtherance of certain of management’s plans as described above.

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 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 adjustments, and up to $60 million in additional contingent milestone payments. During the nine months ended September 30, 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.

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RVL PHARMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The following table presents the components of the gain on the sale of the Legacy Business as recognized upon closing (in thousands):

Three and Nine Months Ended

September 30, 2021

Cash proceeds

$

111,848

Less: transaction costs

(6,335)

Less: net assets transferred

(101,140)

Gain on sale, pre-tax

$

4,373

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

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2021

Total revenues

$

15,551

    

$

61,785

Cost of goods sold (inclusive of depreciation and amortization)

 

4,973

 

30,018

Selling, general and administrative expenses

 

740

 

4,209

Research and development expenses

3,189

5,882

Income from operations

 

6,649

 

21,676

Interest expense and amortization of debt discount

 

1,495

6,399

Other non-operating expense, net

 

1,171

1,058

Income from discontinued operations before gain on disposal and provision for income taxes

 

3,983

 

14,219

Income tax (benefit) expense

(132)

617

Income from discontinued operations before gain on disposal

4,115

13,602

Gain on sales of discontinued operations

4,373

4,373

Income from discontinued operations, net of tax

$

8,488

$

17,975

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):

Nine Months Ended

Cash flows from operating activities:

September 30, 2021

Depreciation and amortization

$

6,583

Share compensation

619

Cash flows from investing activities:

Purchases of property, plant and equipment

$

(1,335)

Note 5. Revenues

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

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RVL PHARMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

customers. From time to time, the Company may invoice a customer after the products have been delivered in which case payments are typically due within 30 days.

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

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

    

Net product sales - Upneeq

$

10,022

 

$

2,196

$

24,414

$

4,451

Royalty revenue

 

 

 

190

Licensing revenue

 

 

 

15,500

10,000

Total revenues

$

10,022

$

2,196

$

39,914

$

14,641

On July 28, 2020, RVL Pharmaceuticals 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, RVL Pharmaceuticals 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.

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 became 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 nine months ended September 30, 2022 and 2021, the Company recognized $15.5 million and $10.0 million, respectively, in license revenue from Santen under the Amendment and the License Agreement, respectively, as all performance obligations were met.

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 $1.2 million at September 30, 2022 and an immaterial amount at December 31, 2021 (see Note 7).

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 September 30, 2022 or December 31, 2021.

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RVL PHARMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Gross product sales

$

10,291

$

2,355

$

24,856

$

4,611

Less provisions for:

 

 

 

Chargebacks

 

(2)

 

(1)

 

(5)

(2)

Discounts and allowances

 

(267)

 

(158)

 

(437)

(158)

Net product sales

$

10,022

$

2,196

$

24,414

$

4,451

Note 6. Accounts Receivable and Other Receivables

Accounts receivable result primarily from sales of Upneeq and from amounts due under revenue sharing, license and royalty arrangements. Other receivables result primarily from payroll retention credits and other miscellaneous activities.

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

    

September 30, 

    

December 31,

2022

2021

Trade accounts receivable

$

1,368

$

Other receivables

 

1,912

 

2,133

Total accounts receivable and other receivables

$

3,280

$

2,133

Note 7. Accrued Liabilities

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

    

September 30, 

    

December 31,

2022

2021

Accrued expenses and other liabilities

$

6,392

$

7,897

Accrued compensation

5,051

4,504

Accrued royalties

 

1,140

 

200

Deferred revenue

 

1,236

 

67

Accrued research and development

130

409

Total accrued liabilities

$

13,949

$

13,077

Note 8. Financing Arrangements

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

    

September 30, 

December 31,

2022

2021

Senior Secured Notes (measured at fair value)

$

55,900

$

43,800

Note payable — insurance financing

 

 

2,409

Total debt and financing obligations

 

55,900

 

46,209

Less: current portion of debt

 

 

(2,409)

Long-term debt

$

55,900

$

43,800

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

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RVL PHARMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Year Ending December 31,

    

Debt Obligations

Remainder of 2022

$

2023

 

2024

 

15,000

2025

15,000

2026

45,000

Total future minimum payments

75,000

Less: current portion of debt principal

Non-current portion of debt principal

$

75,000

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 LP (the “Administrative Agent”) and Athyrium Opportunities IV Acquisition 2 LP, as a 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.

On August 4, 2022, the Company entered into a first amendment to the Note Purchase Agreement (the “Amendment”) with, among others, Athyrium Opportunities IV Co-Invest 1 LP (the “New Purchaser”), certain other purchasers party thereto (together with the New Purchaser, the “Purchasers”) and the Administrative Agent, which amended the Note Purchase Agreement (as amended, the “Amended Note Purchase Agreement”).

The Amendment provided, among other things, for the issuance of $20.0 million of secured second tranche notes, dated as of August 8, 2022. Furthermore, under the Amendment, the Purchasers committed to purchase certain third tranche notes in an aggregate principal amount of up to $25.0 million at any time prior to April 15, 2023, upon the satisfaction of certain conditions, including a minimum net product sales target for Upneeq over a specified period of time.

Further, the Amendment provides for the replacement of a LIBOR-based interest rate under the Note Purchase Agreement with a Term SOFR-based interest rate. After September 30, 2022, the Senior Secured Notes bear interest at an annual rate of 9.0% plus adjusted three-month term SOFR, with a floor of 1.50% and a cap of 3.00%, payable in cash quarterly in arrears. For the three-month interest period beginning October 1, 2022, the interest rate applicable to the aggregate outstanding Senior Secured Notes is 12.0%.

The Senior Secured Notes require quarterly repayments equal to 5.0% of the principal outstanding beginning on March 31, 2024, with any residual balance due at maturity on October 12, 2026. The Senior Secured Notes may be voluntarily prepaid upon the satisfaction of certain conditions and with each such prepayment being accompanied by, as applicable, (i) a make-whole premium, (ii) an exit fee of 2% of the principal amount of the Senior Secured Notes prepaid, (iii) certain other fees, indemnities and expenses, and (iv) all accrued interest on the principal amount of the Senior Secured Notes being so prepaid. The Amendment provided for the reset of the date from which the make-whole premium is applicable with respect to the first tranche notes. Specifically, the make-whole premium start date with respect to the first tranche notes changed from October 12, 2021, to either (A) March 1, 2022, if the third tranche notes are not issued or (B) August 8, 2022, if the third tranche notes are issued.

The Senior Secured Notes must be prepaid upon the receipt of cash under certain defined conditions, including from voluntary and involuntary asset dispositions, extraordinary receipts, issuance of new indebtedness, and contingent milestone payments for the Legacy Business paid by Alora, each such prepayment being accompanied by, as applicable,

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the fees described in (i) through (iv) above. The exit fee described in (ii) above is payable on the principal amount of all notes prepaid or repaid, including upon the repayment of the notes upon maturity.

The Senior Secured Notes are guaranteed on a senior secured basis by the Company and certain of its subsidiaries. The Senior Secured Notes and guarantees are secured by substantially all of the assets of the Company and its U.S. subsidiaries. Subject to certain exceptions and qualifications, the Amended Note Purchase Agreement contains covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries, including the guarantors, to (i) incur additional indebtedness or issue certain disqualified capital stock, (ii) create liens, (iii) transfer or sell assets, (iv) make certain investments, loans, advances and acquisitions, (v) engage in consolidations, amalgamations or mergers, or sell, transfer or otherwise dispose of all or substantially all of their assets, and (vi) enter into certain transactions with affiliates. The Amended Note Purchase Agreement also provides for customary events of default.

In addition, the restrictive covenants in the Amended Note Purchase Agreement require the Company to comply with certain minimum liquidity requirements and minimum quarterly net product sales requirements. At any time and subject to downward adjustment in certain circumstances, the Company is required to maintain unrestricted cash and cash equivalents in an amount 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 (currently at $6.0 million for the fiscal quarter ending December 31, 2022, and increasing in $1.0 million increments each fiscal quarter thereafter until the fiscal quarter ending June 30, 2024, for which such fiscal quarter and all subsequent fiscal quarters the threshold is $12.0 million). At September 30, 2022, the Company was in compliance with all conditions of the Amended 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 first tranche notes upon issuance and, accordingly, a proportionate amount of related debt issuance costs were immediately written off in October 2021. The Company’s residual financial commitment asset related to the undrawn second tranche notes, was being amortized over the relevant one-year commitment period, however, upon the issuance of the second tranche notes in August 2022 the residual financial commitment asset was immediately expensed. For the three and nine months ended September 30, 2022, the Company recognized $1.1 million and $3.1 million, respectively, 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 September 30, 2022 and December 31, 2021, the second tranche financial commitment asset had a carrying value of zero and $3.1 million, respectively, and was recorded within current assets in the accompanying unaudited condensed consolidated balance sheets.

The Company also elected the fair value option of accounting on the second tranche notes upon issuance and, accordingly, $0.9 million of related debt issuance costs were immediately written off in August 2022, with such expense being recorded within selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

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 14).

In the nine months ended September 30, 2022, the Company obtained waivers from the applicable purchasers of mandatory repayments of an aggregate of $5.0 million in principal of the Senior Secured Notes as otherwise required

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under the Amended Note Purchase Agreement, in exchange for a consent fee of $0.2 million, resulting in net retained proceeds of $4.8 million.

Prior Credit Agreement

Prior to October 12, 2021, the Company was party to a Credit Agreement, dated February 3, 2016 and as amended from

time to time, under which an aggregate principal amount of $327.5 million of secured term loans were previously issued (the “Prior Term Loans”) and that provided for revolving credit commitments up to $50.0 million (the “Prio