Pelthos Therapeutics Inc.
05/14/2026 | Press release | Distributed by Public on 05/14/2026 05:07
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q (this "Report") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as "anticipate," "believe," "estimate," "intend," "could," "should," "would," "may," "seek," "plan," "might," "will," "expect," "predict," "project," "forecast," "potential," "continue," negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of Pelthos Therapeutics Inc.'s ("Pelthos", the "Company", "our", "us" or "we") operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts.
From time to time, forward-looking statements also are included in our other periodic reports on Form 10-K, 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, including risks related to market, economic and other conditions; our current liquidity position, the need to obtain additional financing to support ongoing operations, the Company's ability to continue as a going concern; the Company's ability to maintain the listing of its Common Stock on the NYSE American, the Company's ability to manage costs and execute on its operational and budget plans; and, the Company's ability to achieve its financial goals. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
Overview
Pelthos Therapeutics Inc. (the "Company") is a bio-pharmaceutical company committed to commercializing innovative, safe, and efficacious therapeutic products to help patients with unmet treatment burdens. The Company currently has three U.S. Food and Drug Administration ("FDA") approved products in its commercial portfolio, in various stages of commercialization, including ZELSUVMI®, XEPI®, and XEGLYZE®.
The July 1, 2025 merger transaction between Channel Therapeutics Corporation ("Channel") and LNHC, Inc. ("LNHC"), discussed below, resulted in Pelthos Therapeutics Inc. initially having (i) a commercially marketable product, ZELSUVMI for the treatment of molluscum contagiosum, which was launched in July 2025 shortly after the Merger (as defined below); (ii) a manufacturing facility, equipment and know-how to produce the active pharmaceutical ingredient ("API") used in ZELSUVMI and the NITRICILTM technology platform; and (iii) clinical-stage assets which selectively target the sodium ion-channel known as "NaV1.7", which has been genetically validated as a pain receptor in human physiology. In addition, during the fourth quarter of 2025 the Company acquired two additional FDA approved products to expand its commercial product portfolio.
Background
The Company was effectively formed on July 1, 2025 with the Merger of Channel and LNHC.
Channel Background
Chromocell Therapeutics Corporation ("Chromocell") was incorporated in Delaware on March 19, 2021. On February 21, 2024, Chromocell completed the initial public offering of its Common Stock (the "IPO") on the NYSE American.
On November 18, 2024, Chromocell merged with and into its wholly-owned subsidiary, Channel, a Nevada corporation, pursuant to an agreement and plan of merger, dated as of November 18, 2024, for the purposes of reincorporating Chromocell in Nevada. Concurrently with the closing of the reincorporation merger, the Company changed its name from "Chromocell Therapeutics Corporation" to "Channel Therapeutics Corporation".
LNHC Background
LNHC was incorporated in the state of Delaware in September 2023 by Ligand Pharmaceuticals, Inc. ("Ligand") and was initially formed to facilitate a transaction between Ligand and Novan, Inc. ("Novan"). On September 27, 2023, Ligand acquired certain assets of Novan, after providing debtor in possession financing and acquiring specific assets from Novan, under Section 363 of the U.S. Bankruptcy Code (a "363 transaction"). Novan was a medical dermatology company focused on developing and commercializing innovative therapeutic products for skin diseases. Through its NITRICIL technology platform, Novan developed ZELSUVMI (berdazimer gel, 10.3%), formerly named SB206, as a topical prescription gel for the treatment of viral skin infections, with a focus on molluscum contagiosum. As of the acquisition date in September 2023 by Ligand, all assets and liabilities acquired in the Novan acquisition were held by LNHC, which was a wholly owned subsidiary of Ligand, including the NITRICIL technology platform.
On March 24, 2025, LNHC assigned its intellectual property portfolio related to the Novan acquisition, including the NITRICIL technology, to Ligand and entered into an exclusive license and sublicense agreement with Ligand, pursuant to which Ligand licensed to the Company the intellectual property rights necessary to make, use, sell or offer to sell ZELSUVMI for the treatment of molluscum contagiosum in humans worldwide, except for Japan.
On March 24, 2025, LNHC and Ligand also entered into a master services agreement under which Ligand, or related parties, may contract with LNHC to provide API for clinical or commercial use related to the NITRICIL technology. In addition, the agreement also allows Ligand to require LNHC to provide manufacturing technology transfer services, if requested, for products other than ZELSUVMI, to a potential third-party manufacturer.
Recent Business Updates
Venture Loan and Security Agreement
On January 12, 2026, the Company entered into a Venture Loan and Security Agreement with Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent (the "Venture Loan and Security Agreement"). The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50.0 million. The proceeds of the facility will be used to support the commercialization of the Company's existing commercialized pharmaceutical product, to prepare for the launch of two recently acquired products, working capital and general corporate purposes. The Company borrowed $30.0 million of the facility on January 12, 2026. The remaining $20.0 million of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement.
Product Portfolio
ZELSUVMI ® (berdazimer) topical gel, 10.3% for the Treatment of Molluscum Contagiosum
ZELSUVMI (berdazimer) topical gel, 10.3% is a nitric oxide (NO) releasing agent indicated for the topical treatment of molluscum contagiosum in adults and pediatric patients one year of age and older. ZELSUVMI is the first FDA approved topically applied nitric oxide releasing agent indicated for the treatment of molluscum contagiosum in people ages one year and older and the first and only prescription medication FDA approved for use in non-medical settings that can be safely applied by patients, parents and caregivers. Molluscum contagiosum is a highly contagious viral skin infection that primarily affects children, immunocompromised adults and sexually active persons. The Company estimates that molluscum contagiosum infections afflict approximately 16 million people of all ages in the United States.
ZELSUVMI was developed using the proprietary nitric oxide-based technology platform, NITRICIL. ZELSUVMI's mechanism of action against molluscum contagiosum is unknown. In vitro studies of ZELSUVMI's active ingredient,
berdazimer sodium, have demonstrated (i) anti-pox virus activity on vaccinia virus, which is often used as a surrogate for molluscum contagiosum virus; and (ii) reduced early gene expression of molluscum contagiosum virus proteins. ZELSUVMI's final Phase 3 clinical study included 891 enrolled patients treated with ZELSUVMI and demonstrated statistically significant and clinically meaningful efficacy results on both primary and secondary endpoints, a greater reduction in lesions at every measurement point, and favorable safety results during the 12-week duration.
The Company's market research and feedback to date indicate physicians have highly favorable opinions about ZELSUVMI's clinical efficacy, safety, and practicality as the first and only topical medication indicated for molluscum contagiosum that does not require in-office administration by a healthcare provider. The Company believes that ZELSUVMI is likely to complement or represent a differing treatment regimen of current procedural treatments administered in medical settings such as cryosurgery, cantharidin application and curettage.
The Company has an exclusive license to use the NITRICIL Technology Platform as necessary to manufacture ZELSUVMI, as set forth in the license agreement between the Company and Ligand. The Company believes that the NITRICIL platform's ability to deploy nitric oxide in a solid form, on demand and in localized formulations allows the potential to improve patient outcomes in a variety of diseases. The Company believes that the FDA approval of ZELSUVMI has validated the NITRICIL technology platform's ability to achieve stable, tunable and druggable delivery of nitric oxide on therapeutically and commercially important targets such as molluscum contagiosum.
Molluscum Contagiosum
Molluscum contagiosum is caused by a pox virus and is a common skin infection seen by dermatologists, pediatric dermatologists, and pediatricians, with a prevalence estimated by management to be 16 million people in the United States and an annual incidence estimated by management to be 3-6 million. According to the Centers for Disease Control and Prevention ("CDC"), molluscum contagiosum infections are contagious and spread to others through contact with infected persons or contaminated objects such as towels, toys, furniture, swimming pools, and other surfaces. Children are the most vulnerable to molluscum contagiosum infections as are adults with weakened immune systems. In addition, molluscum contagiosum can be sexually transmitted.
Molluscum contagiosum infections present with raised, skin-colored or red bumps that can appear anywhere on the body, including the face, hands, trunk, genitals, back of the knees, armpits, and other sensitive areas. People with molluscum contagiosum may suffer discomfort from itching, secondary bacterial infections, as well as immense social stigma from having visible molluscum contagiosum lesions which typically last for months or for years. Left untreated, molluscum contagiosum lesions may persist an average of 13 months, with reports of cases remaining unresolved for up to five years. The symptoms of molluscum contagiosum can cause anxiety, and parents frequently seek treatment due to its highly contagious nature and its impact on physical appearance.
XEPI® (ozenoxacin) Cream, 1% for the Treatment of Impetigo
In November 2025, the Company acquired XEPI (ozenoxacin) cream, 1% for the treatment of impetigo. The acquisition of this asset provided a complementary dermatology product to the Company's portfolio anchored by ZELSUVMI.
XEPI is a novel FDA-approved non-fluorinated quinolone antimicrobial indicated for the topical treatment of impetigo due to Staphylococcus aureus or Streptococcus pyogenes in adult and pediatric patients two months of age and older. The Company believes XEPI addresses a critical unmet need in antibiotic-resistant skin infections caused by staph and strep infections, most commonly affecting children. Impetigo affects approximately 3 million people in the U.S. every year and is among the most common bacterial skin infections seen in pediatric offices.
The Company acquired the U.S. commercialization rights to XEPI, from Biofrontera, Inc. ("Biofrontera") and an exclusive license agreement with Ferrer Internacional S.A. ("Ferrer") and Interquim, S.A.U. ("Interquim"). XEPI was developed by Ferrer and Medimetriks Pharmaceuticals, Inc., and approved by the FDA in 2017. At the time of approval, XEPI was the first new novel treatment for impetigo in more than 10 years. Biofrontera had owned the U.S. rights to XEPI since 2019 but, has not been actively promoting the product.
XEPI, a new chemical entity, belongs to a new generation of non-fluorinated quinolones. In two Phase 3 pivotal studies, XEPI showed positive efficacy and appeared to be safe and well tolerated in both adult and pediatric populations aged 2 months and older. In addition, XEPI has demonstrated excellent in vitro antibacterial activity against pathologically relevant bacteria and clinical isolates of organisms with emerging antibiotic resistance, such as methicillin-resistant s.
aureus ("MRSA"). The Company believes XEPI represents a novel and important therapy for the topical treatment of impetigo.
The Company expects to commercially relaunch XEPI once certain manufacturing, supply chain, and regulatory activities are validated, implemented and completed, respectively. In addition, the Company will also need to implement its commercial marketing, trade and access strategy prior to the relaunch of XEPI, currently expected in early 2027.
Impetigo
Impetigo is a highly contagious bacterial skin infection most often caused by Staphylococcus aureus and/or Group A Streptococcus (Streptococcus pyogenes). It affects approximately 3 million people in the U.S. every year and is most common in children ages 2 to 5. Impetigo is among the most common bacterial skin infections seen in pediatric offices and spreads easily within families, in crowded settings, such as schools and childcare facilities.
Impetigo, a highly contagious bacterial skin infection commonly treated by Dermatologists and Pediatricians, most often affects infants, young children and those involved in close contact sports or living in enclosed environments. Impetigo is estimated to account for approximately 10% of the skin problems observed in pediatric clinics in the United States and is considered the most common bacterial skin infection.
XEGLYZE® (abametapir) for the Topical Treatment of Head Lice
In December 2025, the Company acquired XEGLYZE (abametapir) for the topical treatment of head lice. XEGLYZE is a pediculicide indicated for the topical treatment of head lice infestation in patients 6 months of age and older. The prescription medication was approved by the FDA in July 2020. The acquisition of this asset from Hatchtech Pty Ltd., an Australian biotech company, provided an additional complementary product to the Company's portfolio. This acquisition will provide the Company the ability to commercialize XEGLYZE worldwide.
XEGLYZE is a novel, patent protected FDA-approved prescription medication indicated for the topical treatment of head lice infestation in patients 6 months of age and older. Abametapir, the active ingredient in XEGLYZE, inhibits metalloproteinases that have a role in physiological processes critical to egg development and survival of lice. The single, 10 minute application does not require nit combing and has sufficient volume in each bottle to treat either short or long hair.
The Company expects to commercially launch XEGLYZE once certain manufacturing, supply chain, and regulatory activities are validated, implemented and completed, respectively. In addition, the Company will also need to implement its commercial marketing, trade and access strategy prior to the launch of XEGLYZE, currently expected in 2027.
Head Lice
In the U.S., infestation with head lice is most common among preschool- and elementary-school age children and their household members and caretakers. An estimated 6 to 12 million infestations occur each year in the U.S. among children 3 to 11 years of age.
Merger Transaction
July 1, 2025 Merger
On July 1, 2025 (the "Merger Closing Date"), the Company consummated the previously announced merger transaction (the "Merger") pursuant to that certain Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, CHRO Merger Sub, Inc. a Delaware Corporation and a wholly owned subsidiary of the Company ("Merger Sub"), LNHC, and solely for the purposes of Article III of the Merger Agreement, Ligand. Pursuant to the Merger Agreement, (i) Merger Sub merged with and into LNHC, with LNHC as the surviving company in the Merger and, after giving effect to such Merger, continuing as a wholly-owned subsidiary of the Company and (ii) the Company's name was changed from Channel Therapeutics Corporation to Pelthos Therapeutics Inc.
At the effective time of the Merger, the Company issued an aggregate of 31,278 shares of the Company's Series A Preferred Stock to Ligand as consideration for the LNHC shares.
The shares of Series A Preferred Stock issued to Ligand in the Merger were not registered under the Securities Act and were issued and sold in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
The shares of the Company's Common Stock listed on the NYSE American previously trading through the close of business on July 1, 2025 under the ticker symbol "CHRO," commenced trading on the NYSE American under the ticker symbol "PTHS," on July 2, 2025. The Company's Common Stock is represented by a new CUSIP number, 171126 204.
Securities Purchase Agreement
Concurrently with the execution of the Merger Agreement, the Company entered into a securities purchase agreement (the "Securities Purchase Agreement") with LNHC and certain investors, which included Ligand (collectively, the "PIPE Investors"), pursuant to which, among other things, on the Merger Closing Date and immediately prior to the consummation of the Merger, the PIPE Investors purchased (either for cash or in exchange for the conversion of principal and interest payable under an outstanding convertible note issued by the Company), and the Company issued and sold to the PIPE Investors, an aggregate of 50,100 shares of the Company's Series A Convertible Preferred Stock, par value $0.0001 per share (the "Series A Preferred Stock") at a price per share equal to $1,000 (such transaction, the "PIPE Financing"). The gross proceeds from the PIPE Financing were approximately $50.1 million, consisting of approximately $50.0 million in consideration and the conversion of approximately $0.1 million of principal and interest payable under an outstanding convertible note with a related party issued by the Company, before paying estimated expenses and before the settlement of certain outstanding bridge notes with the PIPE Investors, described below.
On July 1, 2025, the Company, LNHC and the PIPE Investors entered into Amendment No. 1 to Securities Purchase Agreement, pursuant to which, the Company, LNHC and the PIPE Investors consented to the inclusion of two additional PIPE Investors in the PIPE Financing and a corresponding decrease in the amount of certain PIPE Investors' investments in the PIPE Financing such that the aggregate amount of the PIPE Financing would remain unchanged (the "Securities Purchase Agreement Amendment").
Each share of Series A Preferred Stock is convertible at any time at the holder's option into a number of shares of Common Stock, par value $0.0001 per share equal to (i) $1,000, subject to adjustment, plus any all declared and unpaid dividends thereon as of such date of determination, plus any other amounts owed to such holder pursuant to the Certificate of Designations of Rights and Preferences of Series A Convertible Preferred Stock (the "Certificate of Designations"), divided by (ii) $1 (adjusted to $10 as a result of the ten-for-one Reverse Stock Split), subject to adjustments.
In general, a holder of shares of Series A Preferred Stock may not convert any portion of Series A Preferred Stock if the holder, together with its affiliates, would beneficially own more than 49.9% in the case of Ligand or 4.99% or 9.99%, in the case of the other PIPE Investors (the "Maximum Percentage"), of the number of shares of the Company's Common Stock outstanding immediately after giving effect to such exercise, provided, however, that a holder may increase or decrease the Maximum Percentage by giving 61 days' notice to the Company, but not to any percentage in excess of 9.99%.
The shares of Series A Preferred Stock issued and sold to the PIPE Investors were not registered under the Securities Act and were issued and sold in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
The closing of the PIPE Financing occurred on July 1, 2025, immediately prior to the consummation of the Merger.
On July 1, 2025, certain PIPE Investors entered into Series A Convertible Preferred Stockholder Side Letters (each, a "Side Letter") with the Company, pursuant to which, immediately after the closing of the PIPE Financing on July 1, 2025, the PIPE Investors converted 23,810 shares of Series A Preferred Stock not exceeding such PIPE Investors' Maximum Percentage into an aggregate of 2,381,000 shares of the Company's Common Stock (after giving effect to the Reverse Stock Split), by providing the Company with a completed and signed Conversion Notice under the Certificate of Designation. Approximately 57,568 shares of the Company's Series A Preferred Stock were issued and outstanding immediately following the Effective Time. Immediately following the Merger and the PIPE Financing, the Company's security holders as of immediately prior to the Merger owned approximately 7.4% of the outstanding shares of the Company and LNHC security holders owned approximately 56.1% of the outstanding shares of the Company, in each case on a fully diluted basis, calculated using the treasury stock method.
Net Proceeds from PIPE Financing
Certain PIPE Investors were a party to the ZELSUVMI Royalty Agreement while other PIPE Investors were a party to the Channel Products Royalty Agreement, (collectively, the "Royalty Agreements") as described in Note 9 - "License and Other Agreements" in the notes to our condensed consolidated financial statements. Further, certain PIPE Investors were not a party to the Royalty Agreements. As the PIPE Financing and Royalty Agreements were negotiated together, aggregate proceeds were allocated based on their relative fair value basis. The Company will account for future royalties due as liabilities and will accrete the financing using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated life of the royalty agreements.
Effective January 1, 2025, LNHC entered into a bridge loan agreement with Ligand under which any amounts of cash transferred from Ligand to LNHC, or settlement of LNHC's expenses directly by Ligand, starting from January 1, 2025, were considered a loan from Ligand to LNHC. The maximum borrowing under the bridge loan agreement was $18.0 million (the "Ligand Bridge Note"). The repayment of the Ligand Bridge Note loan at the closing of the Merger was offset against Ligand's funding commitment in the PIPE Financing. The balance of the Ligand Bridge Note was $12.7 million, resulting in $5.3 million of funding provided to the Company as of the Merger Closing Date as part of the PIPE Financing. In addition, on April 16, 2025, LNHC entered into a bridge loan agreement with two third-party lenders, part of the group of strategic investors who participated in the PIPE Financing, for an aggregate amount, including interest, of $6.1 million (the "April Bridge Note"). The repayment of the April Bridge Note at the closing of the Merger was offset against the strategic investors funding commitment in the PIPE Financing. In addition, as part of the Merger closing, a settlement of a related party note of $0.1 million and settlement of a third-party note with a professional services firm of approximately $1.5 million also occurred.
The following are details of the Merger and PIPE Financing as it relates to Series A Preferred Stock and proceeds from the PIPE Financing (in thousands, except share and per share amounts):
| Series A Preferred Shares Issued | Allocated Gross Proceeds | Notes Settlement | Payables Settlement and Expenses | Net Proceeds | ||||||||||||||||||||||||||||
| Beginning Balance as of July 1, 2025 | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||||
| Preferred Stock (Series A) Issued - Merger | 31,278 | - | - | - | - | |||||||||||||||||||||||||||
| Preferred Stock (Series A) Issued - PIPE Financing | 50,100 | 50,100 | (20,340) | (2,376) | 27,384 | |||||||||||||||||||||||||||
| Preferred Stock (Series A) Converted to Common Stock | (23,810) | - | - | - | - | |||||||||||||||||||||||||||
| Ending Balance as of July 1, 2025 | 57,568 | $ | 50,100 | $ | (20,340) | $ | (2,376) | $ | 27,384 | |||||||||||||||||||||||
The Merger resulted in the Company having (i) a commercial product, ZELSUVMI; (ii) the facility, equipment and know-how to manufacture the API used in ZELSUVMI and the NITRICIL technology platform; and (iii) clinical-stage NaV1.7 assets.
Manufacturing Facility and NITRICIL Platform
The Company currently leases its primary operating facility, including 19,265 square feet of laboratory, current good manufacturing practices ("cGMP") manufacturing, warehouse, storage and office space in Durham, North Carolina. The lease, dated January 18, 2021, as amended, has an initial term expiring in 2032, with an option to extend the term of the lease for a period of 5 years. This purpose-built facility was constructed to serve as the primary berdazimer sodium API manufacturing site. Berdazimer sodium is the API that is the backbone of the NITRICIL platform technology. Different concentrations of berdazimer sodium and different formulations of the finished drug product are what differentiates potential treatment options for various indications.
While the intellectual property rights for the NITRICIL technology platform were assigned by LNHC to Ligand prior to the Merger, the Company currently has the rights to the manufacturing facility, equipment and know-how to produce the API used in ZELSUVMI and any other products that may be developed by Ligand, Ligand affiliated parties or third-party licensees related to the NITRICIL technology platform. The MSA between Ligand and the Company provides Ligand,
Ligand affiliated parties or third-party licensees with an ability to source commercial or developmental supply of API, while also providing the Company with the associated economics of the supply of such material.
The NITRICIL proprietary technology platform leverages nitric oxide's naturally occurring anti-viral, anti-bacterial, anti-fungal, and immunomodulatory potential mechanisms of action in an effort to treat a range of diseases. Nitric oxide plays a vital role in the natural immune system response against microbial pathogens and is a critical regulator of inflammation. The technology's ability to harness nitric oxide and its multiple potential mechanisms of action has enabled the creation of a platform with the potential to generate differentiated product candidates. The two key components of the nitric oxide platform are the proprietary NITRICIL technology, which drives the creation of macromolecular New Chemical Entities, and formulation science, both of which are used to tune product candidates for specific targeted indications.
The Company believes the NITRICIL technology platform has many other potential product candidates that could be further developed. Prior to the Merger, clinical work was performed in various indications, including, but not limited to, acne (SB204), atopic dermatitis and psoriasis (SB414), tinea pedis and onychomycosis (SB208) and external genital warts (SB207). Other than SB207, to which the Company has existing rights, the rights are owned by Ligand. Any further development of these assets will require the Company to produce and manufacture the API for use by Ligand, Ligand affiliated parties, third-party licensees or for our own account if we pursue SB207 or license any of the other programs.
NaV1.7 Pain Programs
Prior to the Merger, the Company had been developing new non-opioid therapeutics to alleviate pain. These programs selectively target the sodium ion-channel known as "NaV1.7", which has been genetically validated as a pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in a way to prevent or reduce the transmission of pain perception to the central nervous system ("CNS"). The goal of these programs is to develop a novel and proprietary class of NaV blockers that target the body's peripheral nervous system.
There are currently three pain programs developing therapeutics, all of which are based on the same proprietary molecule, as follows:
Eye Pain (Clinical): Based on a novel formulation of CC8464, our Eye Pain program, titled CT2000, is for the potential treatment of both acute and chronic eye pain. NaV1.7 channels are present on the cornea, making it a viable biological target for treating eye pain. Eye pain may occur with various conditions, including severe dry eye disease, trauma and surgery. Existing therapies for eye pain (such as steroids, topical non-steroidal anti-inflammatory agents, lubricants, local anesthetics) are limited in their effectiveness and/or limited in the duration that they may be prescribed because of safety issues. The Company intends to explore the viability of developing CT2000 as a topical agent for the relief of eye pain. A potential advantage of this approach is that topical administration of CT2000 is unlikely to lead to any hypersensitivity or skin reactions, like what was noted with systemic administration of CC8464, because the systemic absorption from a topical administration would be extremely limited. The Company has completed two animal efficacy studies and has successfully completed Investigational New Drug Application ("IND") enabling ophthalmic toxicology studies as a precursor to launching a Phase 1a/2b human proof of concept study. On March 31, 2026, the Company announced that the first patient had been dosed in its Phase 1b/2a clinical trial evaluating CT2000 as a potential treatment for eye pain. The Company's wholly-owned subsidiary, Channel Pharmaceutical Corporation, owns the rights to CT2000 and its NaV1.7 inhibitor pipeline and is conducting the clinical work through its Australian subsidiary.
Depot Program (Pre-Clinical): Based on several novel formulations of CC8464, the Company's most recently launched program, titled CT3000, is for the potential treatment of post operative pain with the use of nerve blocks. Examples would include knee surgery or shoulder surgery. Existing therapies for nerve blocks lead to neuromuscular blockade which prevents movement following surgery. Doctors often want patients to move soon after surgery to avoid complications such as blood clots. A NaV1.7 inhibitor used for nerve blocks may provide good analgesia but will not lead to neuromuscular blockade that prevents movement like other local anesthetics. The Company will periodically review the timing and budget related to the commencement of toxicology and chemistry, manufacturing, and controls ("CMC") work and a subsequent human proof-of-concept ("POC") trial, but has no immediate plans to do so.
Neuropathic Pain (Clinical): CC8464 is being developed to address certain types of neuropathic pain. The chemical characteristics of CC8464 restrict its entry into the CNS and limit its effect to the NaV1.7 channels in the peripheral nervous system, which consists of the nerves outside the brain and spinal cord. Activation of other channels in the CNS can result in side effects, including addiction and other centrally mediated adverse effects. Since CC8464 is designed to not penetrate the CNS it is highly unlikely to produce CNS mediated side effects including euphoria or addiction. Based on its
characteristics, preclinical studies, and the Phase 1 studies completed to date, the Company believes that CC8464, if approved, could become an attractive option for both patients and physicians as a treatment for moderate-to-severe pain in Erythromelalgia and idiopathic small fiber neuropathy. The Company will periodically review the timing and budget related to the commencement of toxicology and CMC work and a subsequent human POC trial, but has no immediate plans to do so.
ZELSUVMI Commercial Strategy
The Company has launched and is focused on the commercialization of ZELSUVMI and is continuing to support its sales, marketing and commercial team to detail ZELSUVMI.
Commercial Background
ZELSUVMI is the first FDA-approved at-home prescription medication indicated for the treatment of molluscum contagiosum in patients one year of age and older that can be administered by patients, parents and caregivers. As a prescription, ZELSUVMI will generally be covered under patients' pharmacy benefit, differentiating it from procedural reimbursement for cantharidin and cryotherapy. Pediatricians, pediatric dermatologists, dermatologists and infectious disease specialists are the target prescribers.
Pediatricians diagnose the majority of molluscum contagiosum infections, and the Company believes many patients have not been treated due, in part, to a lack of FDA approved prescription treatment options that can be administered outside of medical settings. The Company believes that pediatricians will be key to expanding the market, increasing peak sales, and sales and marketing efficiency. The Company will seek to position ZELSUVMI as the preferred first line therapy among pediatricians. The Company believes ZELSUVMI will enhance and complement current non-prescription treatment options and referral patterns. Based on the Company's interactions with healthcare professionals ("HCPs") to date, the Company believes HCPs would welcome this positioning of ZELSUVMI.
The Company believes that ZELSUVMI fills a medical need in the market as the first safe and efficacious prescription medication for molluscum contagiosum that can be administered outside of medical settings. Based on 2023 data from Veeva Compass, on an annual basis, greater than 390,000 unique patients are affected by molluscum contagiosum and greater than 100,000 unique HCPs are treating the disease in the United States. However, the Company believes this number underestimates the true number of cases due to a previous lack of treatment options.
Sales and Distribution Strategy
The Company is marketing ZELSUVMI primarily to physicians with various types of electronic and physical promotion and direct sales efforts with a dedicated sales force supported by a product management team and support staff. The sales and marketing effort focuses on increasing awareness, adoption and usage of ZELSUVMI to targeted pediatricians, pediatric dermatologists and dermatologists. The Company distributes ZELSUVMI via standard retail pharmacy chains, mail order pharmacies and Amazon pharmacy utilizing a third-party logistics provider. Based on the Company's conversations with HCPs, the Company believes these distribution channels are the most preferred by patients and HCPs. Critical to the launch and commercialization efforts of ZELSUVMI will be co-pay assistance and managing co-pay and patient out-of-pocket costs as well as prescription "pull-through" strategies and tactics to ensure patient access and utilization of ZELSUVMI.
Marketing Strategy
The Company is focusing sales and marketing efforts on expanding product awareness and trial of ZELSUVMI initially by means of personal outreach by sales representatives to pediatric, pediatric dermatologist and dermatologist HCPs who have regularly included diagnosis codes for molluscum contagiosum infection as part of their claims for reimbursement by health insurers. The Company intends to expand its marketing strategies to include more non-personal promotion strategies and tactics focused on patients and eventually to consumer segments. HCP marketing initiatives focus on driving adoption through targeted initiatives like peer-to-peer education, data-driven digital advertising, and customized sales representative programs tailored to practice needs such as understanding insurance coverage and product acquisition. Consumer marketing initiatives focus on expanding both diagnosed and treated patient populations through strategic social media advertising, sharing impactful patient testimonials, and leveraging trusted influence partnerships. For example, in early October 2025, the Company launched "Moms Against Molluscum" movement, a movement to unite mothers, parents, and other caregivers navigating molluscum contagiosum. The Moms Against Molluscum movement encourages people
managing this highly contagious skin infection to visit MomsAgainstMolluscum.com to share their stories and access information about new treatment options, including ZELSUVMI.
Market Access Strategy
The Company's cross functional, payer and reimbursement account team is actively prioritizing and ensuring that the process of accessing ZELSUVMI is seamless, affordable, and easy with everything our patient customers will need, from step-by-step instructions to co-pay cards for eligible patients, to maximize the probability of having a positive outcome from using the Company's product regardless of whatever distributor they prefer to access ZELSUVMI. The Company is focused on certain payer channels, including commercial, Medicaid and Managed Medicaid and provides co-pay cards and coupons for eligible patients that are commercially insured.
In December 2025, the Company announced that it had signed its first commercial agreement with a major Pharmacy Benefit Manager ("PBM") to expand patient access for ZELSUVMI. This agreement is with a Group Purchasing Organization that collaborates with manufacturers on behalf of one of the largest PBMs in the U.S. The PBM with which we contracted manages prescription drug benefits for more than 20 million covered lives, and the formulary inclusion updates for ZELSUVMI started on December 1, 2025.
Manufacturing and Supply Chain
Background
Berdazimer sodium is the API that is the critical component of the NITRICIL platform technology. The Company believes different concentrations of berdazimer sodium and different formulations of the finished drug product may be used to develop additional product candidates for other diseases or conditions. For example, ZELSUVMI (berdazimer) topical gel, 10.3%, which has been approved by the FDA, is one product and indication that has met the regulatory requirements for commercialization. The Company believes the NITRICIL technology platform could generate other potential product candidates that could be further developed, and, pursuant to the MSA with Ligand, the Company may produce API for such other uses.
The supply chain includes the procurement of raw materials, the conversion of raw materials into API, and the conversion of API to finished product. The Company's process, as described in more detail below, is effectively as follows:
•Procurement of underlying raw materials, such as nitric oxide gas;
•Conversion of raw materials into API, including allocated overhead, fixed and variable costs;
•Shipment of API to a third-party CMO;
•Conversion of API into finished product, ZELSUVMI, at the third party CMO; and
•Shipment of finished product from CMO to a third-party logistics provider for distribution.
The Company uses various qualified vendors to source raw materials. The conversion of the API and manufacture occurs at its primary operating facility in North Carolina. The API is then shipped to a third-party fill/finish CMO who converts the API into the finished product, including ancillary/supportive manufacturing, filling and packaging. The finished product is then shipped back to the U.S. domiciled third-party logistics provider for distribution.
The ZELSUVMI manufacturing process is effectively comprised of four key components: raw materials, supply chain, drug substance (API), and drug product (finished product).
Raw Materials
The Company currently relies on third-party suppliers to provide the raw materials that are used by it and its third-party manufacturers in the manufacture of ZELSUVMI. There are a limited number of suppliers for raw materials, including nitric oxide, that are used to manufacture the product candidates and commercial products.
Supply Chain
The Company also relies on third-party logistics vendors to transport raw materials, API, and drug products through our supply chain. Certain materials, including the API, have designated hazard classifications that limit available transportation
modes or quantities. Third-party logistics vendors may choose to delay or defer transportation of materials from time to time, which could adversely impact the timing or cost of our manufacturing supply chain activities.
Drug Substance (Active Pharmaceutical Ingredient)
Due to the complexity of the proprietary manufacturing technology related to the NITRICIL platform, including intellectual property, know-how, trade secrets, production techniques, and the related physical manufacturing requirements and characteristics, the Company previously determined that constructing its custom manufacturing facility was the most effective way to mitigate risk associated with API production. The facility and production process has been fully validated and qualified and the facility has an operational and integrated QMS (Quality Management System) and Enterprise Resource Planning ("ERP") platform governing the operations of the facility.
The Company has manufactured more than one metric ton of API in its facility since becoming operative, including site registration batches, process validation batches, and commercial batches. In preparing for the commercial launch of ZELSUVMI, the Company stockpiled numerous batches of commercial API. The operational API manufacturing strategy incorporates redundancy planning, including maintaining a minimum API inventory on hand to mitigate potential risk, both "upside" and "downside", related to potential future commercial demand of ZELSUVMI. Manufacturing API at its own, U.S.-based facility provides the Company with critical control over the longest lead time and the most complex component of ZELSUVMI's supply chain. The API has a shelf life of 36 months following its manufacture.
The Company currently has sufficient API manufacturing capacity within its facility, as it is configured, to comfortably meet its current sales forecasts to supply API for ZELSUVMI. In its current configuration, the Company has excess capacity to increase utilization for additional API demand. Furthermore, the Company also has the ability to add additional manufacturing shifts and team members to manufacture even greater quantities of API, if needed, for our own account and current and potential future partners or customers of the NITRICIL technology. Effectively, the Company believes the current API theoretical manufacturing capacity could be roughly doubled, if needed, due to one or more of the following: a higher than expected sales demand for ZELSUVMI, demand from current partners, such as Ligand, and potential future partnerships for ZELSUVMI and/or the NITRICIL platform. The Company does not expect to need to invest in material or significant capital expenditures and other fixed costs to bring more manufacturing capacity on-line in the foreseeable future. The Company does expect to incur certain levels of capital expenditures for on-going operations, maintenance and improvements.
Drug Product (ZELSUVMI)
The Company has a long-standing relationship with Orion Corporation ("Orion"), a Finnish full-scale pharmaceutical company with broad experience in cGMP drug manufacturing. Orion manufactures the Company's commercial supply of its ZELSUVMI finished product. The drug product manufacturing and fill/finish process at Orion has been fully validated and qualified including site registration batches, process validation batches, and commercial batches. Through its contractual relationship with Orion, the Company has manufactured initial commercial launch quantities of ZELSUVMI. In addition, the Company has entered into a multi-year supply agreement and provides monthly estimates and forecasts for on-going production of finished products. The Company's supply forecast is informed by the expected sales forecast with adjustments made for safety stock inventory levels and product dating.
Intellectual Property
Under the Exclusive License and Sublicense Agreement with Ligand, dated March 24, 2025, the Company acquired exclusive rights to a robust IP portfolio that provides material coverage for ZELSUVMI, which includes patents and patent applications covering the ZELSUVMI product and its use for treating molluscum contagiosum; trademarks; and know-how and trade secrets covering various aspects of the nitric oxide NITRICIL Technology Platform in addition to manufacturing, research, development, formulation, analytical chemistry and scientific know-how.
There are 14 issued U.S. patents covering ZELSUVMI which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations ("Orange Book") and which are expected to expire during the time period beginning in 2026 and ending in 2035. Upon the initial approval of ZELSUVMI, the Company applied for 1,280 days of patent term extension ("PTE") for the U.S. patent covering ZELSUVMI composition of matter. Assuming the approval of the PTE application, the term of this patent may be extended from February 27, 2034, to August 30, 2037.
In addition, as part of the XEPI transaction and the XEGLYZE acquisition, the Company licensed or purchased the rights to the related patents, trademarks, and intellectual property necessary to commercialize those respective assets, in their field of use and geographic market, respectively. There are two XEPI related patent / applications, with the latest expiration date on January 29, 2032. There are 11 issued patents related to XEGLYZE, with the latest expiration date on December 17, 2034.
Our Customers
The Company primarily sells its ZELSUVMI product to national and regional wholesaler channels. Our wholesalers purchase products from us and, in turn, supply products to retail drug store chains, independent pharmacies and mail order pharmacies. As of March 31, 2026, three of the Company's wholesaler customers accounted for 92% of its total gross accounts receivable balance at 39%, 28% and 25%, respectively. In addition, for the three months ended March 31, 2026, these three wholesalers accounted for 92% of gross revenue at 36%, 28% and 28%, respectively.
Seasonality of Business
Sales of ZELSUVMI may be affected by a number of factors, including but not limited to annual insurance deductible resets, weather, HCP office openings, holidays and school and summer activities.
Competition
The pharmaceutical industry is subject to rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. The Company faces potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, compounding facilities, academic institutions, governmental agencies, and public and private research institutions.
ZELSUVMI is the first and only FDA-approved prescription pharmaceutical therapy for the treatment of molluscum contagiosum that can be administered by patients or caregivers outside of a medical setting. The Company believes the key competitive factors affecting the success of ZELSUVMI are likely to be its efficacy, safety, convenience, and pricing. With respect to ZELSUVMI for the treatment of molluscum contagiosum, the Company will be primarily competing with therapies such as other topical products, natural oils, off-label drugs, natural remedies, cantharidin or medical procedures such as curettage, cryotherapy, and laser surgery.
International Opportunities
The Company, through its exclusive license of ZELSUVMI from Ligand, has the ability to seek approval for and commercialize ZELSUVMI through the rest of the world, except for Japan. The Company estimates molluscum contagiosum incidence and prevalence rates in the European Union and Asia to be comparable to the United States. The Company has previously engaged in several international discussions with distributors seeking supply or license agreements for ZELSUVMI in multiple ex-U.S. territories.
On May 12, 2025, the Trump Administration issued an executive order titled Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients (the "2025 EO"). The 2025 EO outlines a plan to reduce prescription drug prices for Americans. The 2025 EO directs multiple federal agencies, including the U.S. Department of Health and Human Services ("HHS"), to take specific actions aimed at compelling drug manufacturers to lower drug prices in the United States in a manner comparable with other developed nations.
On May 20, 2025, HHS issued a press release stating that the Department "expects each drug manufacturer to commit to aligning United States pricing for all brand products across all markets that do not currently have generic or biosimilar competition with the lowest price of a set of economic peer countries." From this statement, it appears that HHS intends to apply the most-favored-nation ("MFN") pricing only to single-source drugs (i.e., "brand-name" drugs without any approved generic or biosimilar versions). In its May press release, HHS also advised that it will calculate the MFN price as the lowest price in a country that is part of the Organisation for Economic Co-operation and Development and that has a per capita gross domestic product ("GDP") of at least 60% of the U.S. per capita GDP.
The Company will continue to evaluate the 2025 EO and its potential impact to international opportunities for ZELSUVMI.
Key Factors Affecting Our Results of Operations and Future Performance
The Company believes that its financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that the Company must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties.
•The Company must effectively implement and maintain sales, marketing and distribution capabilities for our products to successfully commercialize and generate revenues from our products.
•Our products must achieve a broad degree of physician and patient adoption and use necessary for commercial success. The commercial success of our approved products depends significantly on the broad adoption and use of such products by physicians and patients for approved indications.
•Our product revenues will be dependent on sales to a few significant wholesale customers and the loss of, or substantial decline in, sales to one of these wholesale customers could have a material adverse effect on our expected future revenues and profitability.
•Delays or disruptions in our supply chain and the manufacturing of our product could adversely affect our sales and marketing efforts.
•Unexpected results in the analysis of raw materials, the API or drug product or problems with the execution of or quality systems supporting the analytical testing work, whether conducted internally or by third-party service providers, could adversely affect our commercialization activities.
Results of Operations
On July 1, 2025, Channel, Merger Sub (a wholly owned subsidiary of Channel), LNHC, and solely for the purposes of Article III within the Merger Agreement, Ligand consummated the Merger, pursuant to which, (i) Merger Sub merged with and into LNHC, with LNHC as the surviving company in the Merger and, after giving effect to such Merger, continuing as a wholly-owned subsidiary of Channel and (ii) Channel changed its name to Pelthos Therapeutics Inc.
Comparison of the Three Months Ended March 31, 2026 and 2025
The following table sets forth our results of operations for the three months ended March 31, 2026 and 2025 (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||
| 2026 | 2025 | $ | |||||||||||||||
| Revenue | |||||||||||||||||
| Net product revenues | $ | 10,665 | $ | - | $ | 10,665 | |||||||||||
| License and collaboration revenues | 241 | - | 241 | ||||||||||||||
| Total revenue | 10,906 | - | 10,906 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Cost of goods sold | 1,673 | - | 1,673 | ||||||||||||||
| Selling, general and administrative | 21,104 | 1,640 | 19,464 | ||||||||||||||
| Research and development | 186 | 194 | (8) | ||||||||||||||
| Amortization of intangible assets | 1,031 | - | 1,031 | ||||||||||||||
| Total operating expenses | 23,994 | 1,834 | 22,160 | ||||||||||||||
| Operating loss | (13,088) | (1,834) | (11,254) | ||||||||||||||
| Other (expense) income | |||||||||||||||||
| Interest expense | (2,353) | (134) | (2,219) | ||||||||||||||
| Change in fair value of convertible debt | 5,203 | - | 5,203 | ||||||||||||||
| Total other (expense) income | 2,850 | (134) | 2,984 | ||||||||||||||
| Net loss before provision for income taxes | (10,238) | (1,968) | (8,270) | ||||||||||||||
| Provision for income taxes | - | - | - | ||||||||||||||
| Net loss | $ | (10,238) | $ | (1,968) | $ | (8,270) | |||||||||||
Net Product Revenues
The Company currently sells ZELSUVMI to national and regional wholesalers in the United States. Revenue from product sales is recognized when the customer obtains control of the Company's product, which typically occurs on delivery. Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of prompt-pay discounts, distribution service fees, government rebates, co-payment assistance and payor rebates and administration fees for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a liability (if the amount is payable to a party other than the customer).
For the three months ended March 31, 2026, net product revenues were $10.7 million. Net product revenues relate solely to the commercial launch of ZELSUVMI, which was announced on July 10, 2025.
License and Collaboration Revenues
The Company has one agreement related to a license of intellectual property to a third party. Per Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, the Company determines if there are distinct performance obligations identified in the arrangement. The Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.
License and collaboration revenues for the three months ended March 31, 2026, were $0.2 million. This revenue is related to recognition of deferred revenue from a collaboration agreement with Sato Pharmaceutical Co., Ltd. ("Sato Agreement").
For information about the Sato Agreement, see Note 6 - "Sato Agreement" in the accompanying notes to our condensed consolidated financial statements.
Cost of Goods Sold
Cost of goods sold includes direct and indirect costs related to the manufacture, production, packaging, and distribution of the Company's commercial products. These costs primarily consist of manufacturing costs, including allocated overhead, supply costs, third-party logistics and distribution expenses, quality control and assurance costs, and freight and shipping charges incurred in fulfilling customer orders.
Additionally, the Company's product is subject to strict quality control and monitoring that is performed throughout the manufacturing process, including release of work-in-process to finished goods. In the event that certain batches or units of product do not meet quality specifications, the Company records a write-down of any potential unmarketable inventory to its estimated net realizable value.
For the three months ended March 31, 2026, cost of goods sold was $1.7 million. Cost of goods sold relate solely to ZELSUVMI, which was launched in mid-2025, and includes certain fair value adjustments related to finished goods inventory on hand at the time of the Merger.
The following table sets forth our cost of goods sold for the three months ended March 31, 2026 and 2025 (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||
| 2026 | 2025 | $ | |||||||||||||||
| Cost of goods sold: | |||||||||||||||||
| Products sold (including ASC 805 fair value adjustments) | $ | 1,673 | $ | - | $ | 1,673 | |||||||||||
| Total cost of goods sold | $ | 1,673 | $ | - | $ | 1,673 | |||||||||||
As part of the Merger, certain inventoried items were revalued subject to ASC 805, Business Combinations ("ASC 805"), as of July 1, 2025. For more information, see Note 3 - "Acquisition of LNHC, Inc." in the accompanying notes to our condensed consolidated financial statements.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expense consists of personnel and non-personnel expenses to support growing sales of ZELSUVMI. Personnel-related expense includes salaries, incentive pay, benefits and share-based compensation for personnel engaged in sales, marketing, regulatory, quality, medical, non-capitalizable manufacturing, finance, information technology and administrative functions.
Non-personnel-related expense includes: (i) selling, patient services, pharmacovigilance, marketing, advertising, travel, sponsorships and trade shows; and (ii) other general and administrative costs, including consulting, legal, patent, insurance, accounting, information technology and facilities.
The Company uses a third-party logistics provider ("3PL") to perform a full order-to-cash service, which includes warehousing and shipping directly to its customers on its behalf. Activities performed by the 3PL as recorded in SG&A. SG&A expenses are recognized as they are incurred.
Royalty and/or milestone payments due to third parties under license arrangements or license agreements for commercial products, the associated payment obligations are expensed within SG&A and recorded as a current liability in the periods in which the obligation is incurred.
The following table summarizes our SG&A expense for the three months ended March 31, 2026 and 2025 (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||
| 2026 | 2025 | $ | |||||||||||||||
| Personnel expense: | |||||||||||||||||
| Salaries, incentive pay and benefits | $ | 7,466 | $ | 430 | $ | 7,036 | |||||||||||
| Stock-based compensation | 1,908 | 456 | 1,452 | ||||||||||||||
| Total personnel expense | 9,374 | 886 | 8,488 | ||||||||||||||
| Non-personnel expense: | |||||||||||||||||
| Marketing, sales and commercial | 4,205 | - | 4,205 | ||||||||||||||
| Facilities, manufacturing and depreciation | 1,773 | - | 1,773 | ||||||||||||||
| Corporate and professional services | 1,881 | 754 | 1,127 | ||||||||||||||
| Travel | 678 | - | 678 | ||||||||||||||
| Royalty and milestones | 1,866 | - | 1,866 | ||||||||||||||
| Regulatory and other | 1,327 | - | 1,327 | ||||||||||||||
| Total non-personnel expense | 11,730 | 754 | 10,976 | ||||||||||||||
| Total SG&A expense | $ | 21,104 | $ | 1,640 | $ | 19,464 | |||||||||||
The increase in SG&A for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 is primarily due to increased headcount and other costs associated with the commercial launch of ZELSUVMI, which commenced on July 10, 2025. The additional expenses include selling, patient services, pharmacovigilance, marketing, advertising, travel, sponsorships and trade shows related to the commercial detailing of ZELSUVMI. As of March 31, 2026 the Company had approximately 64 territory managers actively engaged in commercialization efforts related to ZELSUVMI.
In addition, certain corporate, administrative, consulting, legal, patent, insurance, accounting, public company, information technology and facilities expenses have increased from the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, following the launch of ZELSUVMI and the Merger.
Research and Development Expense
Research and development ("R&D") expenses are recognized as they are incurred based on actual work completed through monitoring invoices received and discussions with internal personnel and external service providers as to the progress or stage of completion of preclinical activities, clinical studies and related supporting services for non-commercial assets.
R&D expenses related to the level of activities related to our NaV1.7 pain programs for the three months ended March 31, 2026 and 2025 are noted below (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||
| 2026 | 2025 | $ | |||||||||||||||
| R&D expense: | |||||||||||||||||
| Clinical, CMC, consultants and other | $ | 186 | $ | 194 | $ | (8) | |||||||||||
| Total R&D expense | $ | 186 | $ | 194 | $ | (8) | |||||||||||
On March 31, 2026, the Company announced that the first patient had been dosed in its Phase 1b/2a clinical trial evaluating CT2000 as a potential treatment for eye pain. The Company's wholly-owned subsidiary, Channel Pharmaceutical Corporation, owns the rights to CT2000 and its NaV1.7 inhibitor pipeline and is conducting the clinical work through its Australian subsidiary.
Amortization of Intangible Assets Expense
The amortization of intangibles is primarily related to (a) the Company's purchase accounting of LNHC associated with the Merger upon which the Company recognized intangible assets for (i) the rights it has to make, use and sell ZELSUVMI, and (ii) the Sato Agreement; and (b) the asset acquisition accounting for both the XEPI and XEGLYZE assets acquired during the fourth quarter of 2025.
These assets are being amortized on a straight-line basis over the lesser of the term of the agreement and the useful life of the license or asset. For the three months ended March 31, 2026, amortization of intangible assets was $1.0 million. For more information, see Note 5 - "Goodwill and Intangible Assets" in the accompanying notes to our condensed consolidated financial statements.
Interest Expense
Interest expense is primarily attributable to (a) interest on outstanding debt; and (b) the accounting treatment of certain royalty and purchases agreements entered into by the Company. Outstanding debt relates to the Venture Loan and Security Agreement and the Convertible Notes, whereas the (i) Reedy Creek Purchase Agreement, (ii) ZELSUVMI Royalty Agreement, (iii) Channel Products Royalty Agreement, (iv) XEPI Royalty Agreement and (v) the Sato Payments related to amendments to prior royalty agreements or new royalty agreements associated with the closing of the convertible note.
The Company accounts for the royalty and purchase agreements as liabilities and will accrete the financings using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated lives of the applicable agreements. At the effective date of the agreements, the effective annual interest rate of the specific financing was estimated and contains significant assumptions that affect both the amount recorded at the effective date and the interest expense that will be recognized over the term of the corresponding agreement.
The Company periodically assesses the estimated royalty payments and to the extent the amount or timing of such payments is materially different than the original estimates, an adjustment is made to the effective interest rate, which will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially affect the amount and timing of royalty payments and the amount of interest expense recorded by the Company over the term. Such factors include, but are not limited to, volumes of revenue generated by the underlying products, changing standards of care, the introduction of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in regulatory authorities placing restrictions on the use of the drug products, delays or discontinuation of development and commercialization applicable products, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases to both forecasted revenues and interest expense.
For more information, see Note 8 - "Reedy Creek Liability" and Note 9 - "License and Other Agreements" in the accompanying notes to our condensed consolidated financial statements.
The following table summarizes our interest expense for the three months ended March 31, 2026 and 2025 (in thousands):
| Three Months Ended March 31, | Change | ||||||||||||||||
| 2026 | 2025 | $ | |||||||||||||||
| Interest expense: | |||||||||||||||||
| Reedy Creek Purchase Agreement | $ | (567) | $ | - | $ | (567) | |||||||||||
| ZELSUVMI Royalty Agreement | (428) | - | (428) | ||||||||||||||
| Xepi Royalty Agreement - Convertible Notes | (55) | - | (55) | ||||||||||||||
| Sato Payments - Convertible Notes | (27) | - | (27) | ||||||||||||||
| Convertible Notes | (387) | - | (387) | ||||||||||||||
| Venture Loan & Security Agreement | (885) | - | (885) | ||||||||||||||
| Other | (4) | (134) | 130 | ||||||||||||||
| Total interest expense | $ | (2,353) | $ | (134) | $ | (2,219) | |||||||||||
Change in Fair Value of Convertible Debt
On November 6, 2025, the Company entered into a securities purchase agreement with certain investors, including Ligand, pursuant to which, among other things, on the closing date, the convertible investors purchased for cash, and the Company issued and sold to the convertible investors, senior secured Convertible Notes of the Company in the aggregate original principal amount of $18.0 million, which are convertible into shares of the Company's Common Stock at a conversion rate of $29.73. The Convertible Notes accrue interest at a rate of 8.5% per annum and mature on November 6, 2027.
The Company analyzed the terms of the Convertible Notes and its embedded features concluding it appropriate to account for the Convertible Notes at fair value under the allowable fair value option. Accordingly, the Company initially recognized the Convertible Notes at fair value and subsequently measures the Convertible Notes at fair value with changes in fair value recorded in current period earnings, or other comprehensive income if specific to Company credit risk.
For the three months ended March 31, 2026, the change in fair value of the Convertible Notes was $5.2 million, due primarily to a decline in the Company's common stock price of $31.00 at December 31, 2025 to $21.01 at March 31, 2026. This change in fair value excludes a $3.2 million gain, recorded in accumulated other comprehensive income on the condensed consolidated balance sheet, related to the Convertible Notes credit risk component for the three months ended March 31, 2026. The credit risk component adjustment was primarily driven by the subordination of the Convertible Notes resulting from the Company's entry into the Venture Loan and Security Agreement on January 12, 2026.
See Note 7 - "Notes Payable" in the accompanying notes to our condensed consolidated financial statements for additional detail.
Liquidity and Capital Resources
During the three months ended March 31, 2026, the Company had a net loss of approximately $10.2 million. As of March 31, 2026, the Company had cash of approximately $32.0 million and working capital of $44.8 million. For the three months ended March 31, 2026, the Company recorded net revenue in the amount of $10.7 million, which represented nine months of commercial activity for its lead commercial product, ZELSUVMI. For the three months ended March 31, 2026, the Company recorded total operating expenses of $24.0 million.
On January 12, 2026, the Company entered into a Venture Loan and Security Agreement with Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent. The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50.0 million. The proceeds of the facility will be used to support the commercialization of the Company's existing commercialized pharmaceutical product, to prepare for the launch of two recently acquired products, working capital and general corporate purposes. The Company borrowed $30.0 million of the facility on January 12, 2026. The remaining $20.0 million of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement.
As further discussed in Note 2 - "Basis of Presentation and Summary of Significant Accounting Policies" in the accompanying notes to our condensed consolidated financial statements, in prior periods, management disclosed substantial doubt about the Company's ability to continue as a going concern. The conditions and events that previously raised substantial doubt have been alleviated by management's plans and actions. Based on current projections, including forecasted cash flows related to net product sales of ZELSUVMI, proceeds from the convertible note agreement in November 2025, proceeds from the initial draw of the January 2026 Venture Loan and Security Agreement, and the potential additional availability under the January 2026 Venture Loan and Security Agreement, management believes it has sufficient capital, or access to capital, to fund its operations through at least the next twelve months following the issuance of the accompanying condensed consolidated financial statements and management has concluded there are no conditions or events that raise substantial doubt about the Company's ability to continue as a going concern under ASC 205-40, Presentation of Financial Statements - Going Concern. While risks remain, management believes available liquidity and cash generation from operations are sufficient for near-term needs.
Cash Flows
The following table sets forth our cash flows for the periods indicated (in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Net cash (used in) provided by: | ||||||||||||||
| Operating activities | $ | (13,126) | $ | (632) | ||||||||||
| Investing activities | (194) | - | ||||||||||||
| Financing activities | 27,523 | 250 | ||||||||||||
| Net increase in cash, cash equivalents and restricted cash | $ | 14,203 | $ | (382) | ||||||||||
Net Cash Used in Operating Activities
For the three months ended March 31, 2026, net cash used in operating activities was $13.1 million and consisted primarily of a net loss of $10.2 million, with adjustments for non-cash amounts related primarily to (i) stock-based compensation expense of $1.9 million, (ii) amortization of definite lived intangible assets of $1.0 million, (iii) $0.5 million of depreciation expense, (iv) $1.1 million of accretion of interest expense for royalty obligations, (v) $0.1 million of lease amortization, (vi) amortization of debt discount of $0.2 million, (vii) change in fair value of Convertible Notes of $5.2 million, and (viii) a $2.4 million decrease in cash related to changes in operating assets and liabilities.
The favorable impacts to cash related to changes in operating assets and liabilities was primarily due to (i) a $0.2 million change in inventory, (ii) a change in accounts payable of $3.2 million, (iii) a change in operating lease assets of $0.1 million, and (iv) a change in prepaid expenses of $0.5 million. The unfavorable impacts to cash related to changes in (i) accounts receivable of $2.8 million, (ii) accrued expenses of $1.9 million, (iii) contingent consideration of $1.2 million, and (iv) deferred revenue of $0.2 million.
For the three months ended March 31, 2025, the Company incurred a net loss of $2.0 million and net cash flows used in operating activities was $0.6 million. The cash flow used in operating activities was primarily due to net loss, offset by stock-based compensation expense of $0.5 million, amortization of debt discount of $0.1 million,, and a change in accounts payable of $0.7 million.
Net Cash Provided By Investing Activities
For the three months ended March 31, 2026, net cash flows used in investing activities was $0.2 million, related primarily to purchases of property and equipment of $0.2 million.
The Company neither received nor used cash in investing activities during the three months ended March 31, 2025.
Net Cash Provided by Financing Activities
For the three months ended March 31, 2026, net cash flows provided by financing activities were $27.5 million, primarily from the January 12, 2026 Venture Loan and Security Agreement net proceeds.
For the three months ended March 31, 2025, net cash flows provided by financing activities were $0.3 million resulting from net proceeds from loans of $0.3 million.
Capital Requirements
The Company may utilize its available financial resources sooner than it currently expects. The Company will need to raise additional capital in the future if it decides to expand its business, to develop other product candidates, or to pursue strategic investments or acquisitions, and it may consider raising additional capital to take advantage of favorable market conditions or financing opportunities or for other reasons.
Our future capital requirements will depend on many factors, including, but not limited to:
•The level of sales achieved from the commercialization of ZELSUVMI for the treatment of molluscum contagiosum;
•the costs of commercializing ZELSUVMI, XEPI and XEGLYZE, including our business development and marketing efforts;
•the effect of competing products and other market developments;
•the extent to which the Company acquires or seeks to develop other product candidates;
•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents and other intellectual property and proprietary rights, and
•our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company.
The Company anticipates that its principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures and other general corporate purposes. However, any potential future additional issuances of equity, or debt that could be convertible into equity, would result in further dilution to our existing stockholders.
Off -Balance Sheet Arrangements
During the three months ended March 31, 2026 and 2025, the Company did not have, and it does not currently have, any off-balance sheet arrangements, as defined under applicable U.S. Securities and Exchange Commission (the "SEC") rules.
Contractual Obligations and Commitments
The Company has entered into arrangements that contractually obligate it to make payments that will affect its liquidity and cash flows in future periods. Such arrangements include those related to the Company's lease commitments, third-party license agreements, including licenses, lending and/or debt agreements and long-term manufacturing agreements.
There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 19, 2026, other than the Venture Loan and Security Agreement, described below.
See our Annual Report on Form 10-K for a complete listing of all contractual obligations and commitments of the Company as of December 31, 2025, in addition to the following material change during the three months ended March 31, 2026.
Senior Secured Loan Facility
On January 12, 2026 (the "Venture Loan and Security Agreement Closing Date"), the Company, LNHC and CPC, as co-borrowers (together with the Company, the "Borrowers"), entered into a Venture Loan and Security Agreement by and among the Borrowers and Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent ("Horizon"). The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50.0 million (collectively, the "Term Loans"). The proceeds of the Term Loans will be used to support the commercialization of the Company's existing commercialized pharmaceutical product, to prepare for launch its two recently acquired assets, and for working capital and general corporate purposes. The Borrowers borrowed $30.0 million of Term Loans on the Venture Loan and Security Agreement Closing Date. The remaining $20.0 million of Terms
Loans may be borrowed under the Venture Loan and Security Agreement upon the achievement by the Company of certain milestones set forth in the agreement.
Borrowings under the Venture Loan and Security Agreement accrue interest at a rate equal to the prime rate plus 3.75% with the prime rate having a floor of 6.75%. The Term Loans are repayable in monthly interest-only payments from February 1, 2026 until February 1, 2029 (the "Interest-Only Payment Period"). After the expiration of the Interest-Only Payment Period, beginning on March 1, 2029, the Term Loans will be repayable in 24 equal monthly payments of principal and accrued interest until maturity. Alternatively, if the Borrowers achieve a trailing twelve-month consolidated net revenue of at least $75.0 million, the Term Loans will be repayable in monthly interest-only payments from February 1, 2026 until February 1, 2030 (the "Extended Interest-Only Payment Period"). After the expiration of the Extended Interest-Only Payment Period, beginning on March 1, 2030, the Term Loans will be repayable in 12 equal monthly payments of principal and accrued interest until maturity. The Term Loans will mature on January 31, 2031 (the "Venture Loan and Security Agreement Maturity Date").
The Borrowers paid a commitment fee in the amount of $0.3 million on the Venture Loan and Security Agreement Closing Date. The Borrowers will pay an additional commitment fee in the amount of 1.0% of the principal amount of the remaining undrawn Term Loans concurrently with the funding of those Term Loans. Upon the payment in full of the outstanding Term Loans, the Borrowers will pay Horizon a final payment in the amount of 5.0% of the aggregate original principal amount of the Term Loans made under the Venture Loan and Security Agreement.
At the Borrowers' option, the Borrowers may prepay all of the outstanding Term Loans, subject to a prepayment premium equal to (a) 3.0% of the Term Loans being prepaid if the prepayment is made during the Interest-Only Period or Extended Interest-Only Period, as applicable; (b) 2.0% of the Term Loans being prepaid if the prepayment occurs within twelve months after the Interest-Only Period or Extended Interest-Only Period, as applicable; and (c) 1.0% of the Term Loans being prepaid if the prepayment occurs any time thereafter.
The Borrowers' obligations under the Venture Loan and Security Agreement are secured by substantially all of the Borrowers' assets, including intellectual property, subject to certain customary exceptions.
In connection with the Venture Loan and Security Agreement, the Company issued to Horizon warrants to purchase up to 65,488 shares of common stock, par value $0.0001 per share, at an exercise price of $27.49 per share (the "Initial Horizon Warrants"). The Initial Horizon Warrants are exercisable for 10 years from the Venture Loan and Security Agreement Closing Date.
The Venture Loan and Security Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Borrowers and their subsidiaries to, among other things, dispose of assets, enter into certain licensing arrangements, effect certain mergers, incur debt, grant liens, pay dividends and distributions on their capital stock, make investments and acquisitions, and enter into transactions with affiliates, in each case subject to customary exceptions for a loan facility of this size and type. The Venture Loan and Security Agreement also includes customary events of default, including, among others, payment defaults, material misrepresentations, breaches of covenants following any applicable cure period, cross defaults with certain other indebtedness, bankruptcy and insolvency events, judgment defaults and the occurrence of certain events that could reasonably be expected to have a "material adverse effect." The occurrence of an event of default could result in the acceleration of the Borrowers' obligations under the Venture Loan and Security Agreement, the termination of the Horizon's commitments, a 4.0% increase in the applicable rate of interest and the exercise by Horizon of other rights and remedies provided for under the Venture Loan and Security Agreement.
See Note 7 - "Notes Payable" in the accompanying notes to our condensed consolidated financial statements for additional detail.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company has identified the critical accounting policies and judgments addressed below. The Company also has other key accounting policies, which involve the use of estimates,
judgments, and assumptions that are significant to understanding our results. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. To the extent there are material differences between the estimates and actual results, our future results of operations will be affected.
For additional information, see Note 2 - "Basis of Presentation and Summary of Significant Accounting Policies" in the accompanying notes to our condensed consolidated financial statements. Although the Company believes that its estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
While our significant accounting policies are more fully described in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, the Company believes that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of its consolidated financial statements and understanding and evaluating our reported financial results. There have been no material changes to our critical accounting policies and significant judgments and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 19, 2026, other than the Venture Loan and Security Agreement, described below.
Business Acquisitions
The Company accounts for business acquisitions using the acquisition method of accounting in accordance with ASC 805. ASC 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value Measurements ("ASC 820"), as of the acquisition date. For certain assets and liabilities, book value approximates fair value. In addition, ASC 805 establishes that consideration transferred be measured at the closing date of the acquisition at the then-current market price. Under ASC 805, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are expensed in the period in which the costs are incurred. The application of the acquisition method of accounting requires the Company to make estimates and assumptions related to the estimated fair values of net assets acquired, which require significant management judgment.
•The goodwill arising from the Merger is primarily attributable to expected synergies. The goodwill will not be deductible for federal tax purposes. The fair value measurements were primarily based on significant inputs that are not observable in the market, and thus represent Level 3 fair value measurements.
•The fair value of developed technology was estimated using the "multi-period excess earnings" method, an income approach that considers the net cash flows expected to be generated by the intangible asset by excluding any cash flows related to contributory assets. Significant assumptions include the expected useful life of the patent, contributory asset charges and the concluded discount rate. The developed technology will be amortized on a straight-line basis over an estimated useful of 12.2 years.
•The fair value of the Sato licensing agreement was estimated using the "relief from royalty" method, an income approach that considers the market-based royalty a company would pay to enjoy the benefits of the trade name or technology in lieu of actual ownership of the technology. Significant assumptions include the royalty rate, forecasted cash flows of the license agreement and concluded discount rate. The Sato licensing agreement was initially amortized on a straight-line basis over an estimated useful of 13.0 years. Based on changes described in Note 5 - "Goodwill and Intangible Assets" in the accompanying notes to our condensed consolidated financial statements the useful life was shortened to 2.25 years as of December 31, 2025.
•The fair value of the inventory was estimated using the top/down method that considers the estimated selling price, costs to complete, disposal costs, profit margin on disposal effort, and holding costs. Significant assumptions include management's estimates for the selling price and the costs to be incurred related to the disposal effort of the inventory.
•The fair value of the Reedy Creek liability was estimated using the income approach that considers the royalties based on sales of ZELSUVMI. Significant assumptions include the management's revenue forecast, royalty rate, and concluded discount rate.
•Deferred taxes were adjusted to record the deferred tax impact of acquisition accounting adjustments primarily related to amounts allocated to intangible assets and inventory.
See Note 3 - "Acquisition of LNHC, Inc." in the accompanying notes to our condensed consolidated financial statements for additional detail.
Revenue Recognition
Pursuant to ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) a performance obligation is satisfied.
Net Product Revenues
The Company sells ZELSUVMI to national and regional wholesalers in the United States. The wholesalers are considered the Company's customers for accounting purposes.
Revenue from product sales is recognized when the customer obtains control of the Company's product, which typically occurs on delivery. Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of prompt-pay discounts, distribution service fees, government rebates, co-payment assistance and payor rebates and administration fees for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a liability (if the amount is payable to a party other than the customer).
Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. In making these estimates, the Company considers historical data, including patient mix and inventory sold to customers that has not yet been dispensed. Actual amounts of consideration ultimately received may differ from the Company's estimates. If actual results vary materially from the Company's estimates, the Company will adjust these estimates, which will affect net product sales and earnings in the period such estimates are adjusted. These items, as applicable based on current contractual agreements and obligations on behalf of the Company, include prompt pay discounts, distribution service fees, co-pay assistance, government rebates, payor rebates and administration fees.
License and Collaboration Revenues
The Company has one agreement related to a license of intellectual property to a third party. Per ASC 606 the Company determines if there are distinct performance obligations identified in the arrangement. The Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company's management utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the estimated performance period and the appropriate method of measuring progress during the performance period for purposes of recognizing revenue.
The Company re-evaluates the estimated performance period and measure of progress for each reporting period and, if necessary, adjusts related revenue recognition accordingly. These arrangements often include milestone as well as royalty or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements from our payments to the collaboration partner. Because of the risk that products in development will not receive regulatory approval, the Company does not recognize any contingent payments until regulatory approval becomes probable. Future sales-based royalties are not recorded until the subsequent sale occurs.
Inventory
The Company measures inventory using the first-in, first-out method and values inventory at the lower of cost or net realizable value. Inventory value includes costs related to materials, manufacturing, labor, conversion and overhead expenses. The Company adjusts its inventory for potentially obsolete inventory. The adjustment for obsolescence is generally an estimate of the value of inventory that is expected to expire in the future based on projected sales volume and product expiration or expected sell-by dates. These assumptions require the Company to analyze the aging of and forecasted demand for its inventory and make estimates regarding future product sales.
Prior to obtaining initial regulatory approval for ZELSUVMI in January 2024, inventory costs related to the production of pre-launch inventory were expensed as research and development costs. Subsequent to January 5, 2024, the date of the
FDA's approval of ZELSUVMI, inventory costs were capitalized by LNHC. As part of the Merger, certain inventoried items were revalued subject to ASC 805.
See Note 3 - "Acquisition of LNHC, Inc." in the accompanying notes to our condensed consolidated financial statements for additional detail.
Intangible Assets, Net and Goodwill
Intangible assets represent certain identifiable intangible assets, including product rights consisting of pharmaceutical product licenses and patents. Amortization for pharmaceutical products licenses is computed using the straight-line method based on the lesser of the term of the agreement and the useful life of the license. Amortization for pharmaceutical patents is computed using the straight-line method based on the useful life of the patent.
Definite-lived intangible assets are reviewed for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. In the event impairment indicators are present or if other circumstances indicate that an impairment might exist, then management compares the future undiscounted cash flows directly associated with the asset or asset group to the carrying amount of the asset group being determined for impairment. If those estimated cash flows are less than the carrying amount of the asset group, an impairment loss is recognized. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. Considerable judgment is necessary to estimate the fair value of these assets; accordingly, actual results may vary significantly from such estimates.
Indefinite-lived intangible assets, including goodwill, are not amortized. The Company tests the carrying amounts of goodwill for recoverability on an annual basis on July 1 or when events or changes in circumstances indicate evidence that a potential impairment exists, using a fair value-based test.
Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at the reporting unit level at least annually, or more frequently if an event occurs indicating the potential for impairment. During a goodwill impairment review, management performs an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance. If, after assessing the totality of these qualitative factors, management determines that it is not more likely than not that the fair value of reporting unit is less than the carrying amount, then no additional assessment is deemed necessary. The Company did not identify indicators of impairment for goodwill during the three-month period ended March 31, 2026.
See Note 5 - "Goodwill and Intangible Assets" in the accompanying notes to our condensed consolidated financial statements for additional detail.
Fair Value Measurements and Fair Value of Financial Instruments
The Company determines fair value, per ASC 820, based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
•Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
•Level 2 Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
•Level 3 Inputs are unobservable inputs which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
Reedy Creek Purchase Agreement
The Company has determined that the Reedy Creek Purchase Agreement is within the scope of ASC 730-20, Research and Development Arrangements ("ASC 730-20"), and that there has not been a substantive and genuine transfer of risk related
to the Reedy Creek Purchase Agreement. As of the Merger date, the Reedy Creek liability was measured at fair value. This long-term liability is subsequently measured at amortized cost using the prospective effective interest method described in ASC 835-30, Imputation of Interest ("ASC 835-30"). The effective interest rate is calculated by forecasting the expected cash flows to be paid over the life of the liability relative to its fair value as of the Merger date. The effective interest rate is recalculated in each reporting period as the difference between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows. The carrying value of the Reedy Creek liability is made up of the opening balance, which is increased by accrued interest expense, and decreased by any cash payments made to Reedy Creek during the period to arrive at the ending balance.
See Note 8 - "Reedy Creek Liability" in the accompanying notes to our condensed consolidated financial statements for additional detail.
July 1, 2025 and November 6, 2025 Royalty Agreements
The Company accounts for the Reedy Creek Purchase Agreement, the ZELSUVMI Royalty Agreement, the Amended Channel Products Royalty Agreement and the Convertible Royalty Agreements as liabilities and will accrete the financing using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated lives of the applicable agreements. At the effective date of the agreements, the effective annual interest rate of the specific financing was estimated and contains significant assumptions that affect both the amount recorded at the effective date and the interest expense that will be recognized over the term of the corresponding agreement.
The Company periodically assesses the estimated royalty payments and to the extent the amount or timing of such payments is materially different than the original estimates, an adjustment is made to the effective interest rate, which will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially affect the amount and timing of royalty payments and the amount of interest expense recorded by the Company over the term. Such factors include, but are not limited to, volumes of revenue generated by the underlying products, changing standards of care, the introduction of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in regulatory authorities placing restrictions on the use of the drug products, delays or discontinuation of development and commercialization applicable products, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases to both forecasted revenues and interest expense.
See Note 9 - "License and Other Agreements" in the accompanying notes to our condensed consolidated financial statements for additional detail.
Senior Secured Loan Facility
The Company analyzed the terms of the Venture Loan and Security Agreement and its embedded features concluding it appropriate to account for the Initial Horizon Warrants as freestanding financial instruments with equity classification. As the Initial Horizon Warrants are equity classified, the proceeds from the Venture Loan and Security Agreement were allocated based on the relative fair values of the Term Loans and the Initial Horizon Warrants, with the amount allocated to the Initial Horizon Warrants recorded as additional paid-in-capital. The Term Loans were recorded at the proceeds received, less applicable discounts. The final payment, debt issuance costs and allocation of fair value of the Initial Horizon Warrants will be amortized to interest expense over the term of the loan.
See Note 7 - "Notes Payable" in the accompanying notes to our condensed consolidated financial statements for additional detail.
Convertible Notes
The Company analyzed the terms of the Convertible Notes and its embedded features concluding it appropriate to account for the Convertible Notes at fair value under the allowable fair value option. Accordingly, the Company initially recognized the Convertible Notes at fair value and will subsequently measure the Convertible Notes at fair value with changes in fair value recorded in current period earnings, or other comprehensive income if specific to Company credit risk. When estimating instrument specific credit risk, the Company will isolate the effect of using the historical instrument credit rating at the current period end, effectively holding all other inputs constant.
Due to the significant related-party relationships with certain investors and Ligand, the Convertible Securities Purchase Agreement is not presumed to be at arms-length. The Company estimated the initial fair value of the Convertible Notes and royalty obligations to be in excess of the transaction price. Accordingly, the Company initially recorded both instruments, which were determined to be free standing, at the issuance date fair value. Further, the Company allocated issuance costs between the two instruments based on their relative fair values.
See Note 7 - "Notes Payable" in the accompanying notes to our condensed consolidated financial statements for additional detail.
XEPI Transaction
The Biofrontera Asset Purchase Agreement and the Ferrer License Agreement were entered into in contemplation of each other to achieve a combined commercial effect. Additionally, the execution of the Biofrontera Asset Purchase Agreement was contingent upon the execution of the Ferrer License Agreement. As such, the Biofrontera Asset Purchase Agreement and the Ferrer License Agreement are combined and accounted for as a single transaction (the "XEPI Transaction").
The Company determined that the acquired assets associated with the XEPI Transaction do not meet the definition of a business and should be accounted for as an asset acquisition. The XEPI Transaction intangible asset will be amortized over the 6-year expected useful life of the intellectual property, which is determined based on the last to expire patent underlying the XEPI intellectual property. The Company will assess the remaining useful life of the intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization.
As of the closing date of the XEPI Transaction, the Company determined that the contingent payments are both considered probable and reasonably estimable and will recognize the fair value of the liabilities as part of the cost of the asset acquisition. The Company determined that the full $1.0 million and $1.2 million contractual values are expected to be paid to Biofrontera and Ferrer, respectively, and therefore recorded the initial liability at $2.2 million. The Company also believes $2.2 million approximates the fair value of the obligation as the Company is expected to receive the API and achieve Commercial Quantities within one year of the closing date. Given the initial probability of being met, any adjustments to present value are therefore deemed immaterial.
See Note 5 - "Goodwill and Intangible Assets" in the accompanying notes to our condensed consolidated financial statements for additional detail.
XEGLYZE Asset Purchase Agreement
On November 20, 2025, the Company entered into a Downpayment Agreement for XEGLYZE Assets Purchase (the "Downpayment Agreement") with Hatchtech Pty Ltd. ("Hatchtech") to purchase the right, title and interest in XEGLYZE (the "Product"), an FDA-approved Abametapir lotion treatment for head lice infestation in humans. The purchase includes all assets of the seller pertaining to the associated product intellectual property, preclinical data, associated regulatory materials, and all inventory and other tangible personal property and materials used or held for use in connection with the Product. On December 23, 2025, Pelthos and Hatchtech entered into an Asset Purchase Agreement (the "XEGLYZE Asset Purchase Agreement") for the transferred assets.
As outlined by the Downpayment Agreement, the Company was to pay Hatchtech a total purchase price of $1.8 million of which, $0.4 million was made as a downpayment on November 20, 2025 upon execution of the Downpayment Agreement. On December 29, 2025, the date of closing of the acquisition, the Company paid the remaining $1.4 million to Hatchtech.
Though the XEGLYZE Asset Purchase Agreement referenced tangible assets, including inventory, components, packaging, supplies, equipment, machinery, tooling, computers, hardware, furniture, and fixtures related to the Product, no tangible assets were transferred to the Company. Additionally, no liabilities were assumed by the Company as a result of the XEGLYZE Asset Purchase Agreement. The Company will be responsible for all future liabilities that arise on or after the closing date, directly or indirectly.
The Company determined that the acquired assets associated with the XEGLYZE Asset Purchase Agreement do not meet the definition of a business and should be accounted for as an asset acquisition. The Company acquired the XEGLYZE intellectual property rights including all patents, tradenames, trademarks, know-how, technical data, and all other XEGLYZE proprietary and intellectual property rights, which are recognized as a single intangible asset. The total purchase price of $1.8 million, will be allocated to the XEGLYZE intangible asset.
The intangible asset will be amortized over the 9-year expected useful life of the intellectual property, which is determined based on the expiration date of the patent underlying the XEGLYZE intellectual property. The Company will assess the remaining useful life of the intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization.
See Note 5 - "Goodwill and Intangible Assets" in the accompanying notes to our condensed consolidated financial statements for additional detail.
Income Taxes
We are subject to income taxes in the U.S. and Australia. Significant judgment is required in determining income tax expense, deferred taxes and uncertain tax positions. The underlying assumptions are also highly susceptible to change from period to period. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all the deferred tax assets will be realized. The ultimate realization of deferred taxes assets is dependent upon generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxable income in carryback years and tax-planning strategies when making this assessment. There is currently significant negative evidence which contributes to our recording a valuation allowance against our deferred tax assets due to cumulative losses since inception. Although we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our condensed consolidated financial statements. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date. Adjustments to income tax expense, to the extent we adjust the valuation allowance in a future period, could have a material impact on our financial condition and results of operations.
Recently Issued and Adopted Accounting Pronouncements
We describe the impact of recently issued accounting pronouncements that apply to us in Note 2 of Item 1 of this Quarterly Report on Form 10-Q.
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