SEC Filing | Impel Pharmaceuticals Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2023


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

For the transition period from to

Commission File Number 001-40353

IMPEL PHARMACEUTICALS INC.

(Exact name of Registrant as specified in its Charter)

Delaware

26-3058238

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

201 Elliott Avenue West, Suite 260

Seattle, WA 98119

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (206) 568-1466

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	IMPL	The Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The number of shares of Registrant’s Common Stock outstanding as of May 8, 2023 was 23,749,005.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical facts, including statements concerning our business strategy and plans, future operating results and financial position, as well as our objectives and expectations for our future operations, are forward-looking statements.

In some cases, you can identify forward-looking statements by such terminology as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements about:

•

our ability to successfully execute our commercialization strategy for Trudhesa;

•

our expectations regarding our plans to pursue a new strategic reprioritization, halt research and development on certain product candidates, and the associated cost savings;

•

the size and growth potential of the market for Trudhesa and the markets for any future product candidates, if approved for commercial use, and our ability to serve those markets;

•

our ability to obtain and maintain regulatory approval of any future product candidates, and any related restrictions, limitations or warnings in the label of any approved product;

•

the timing or likelihood of regulatory filings and approvals;

•

the success, cost and timing of our development activities, preclinical studies and clinical trials;

•

the number, size and design of clinical trials that regulatory authorities may require to obtain marketing approval;

•

our plans relating to the future development and manufacturing of product candidates, including plans for future development of our POD devices and proprietary POD technology, and plans to address additional indications for which we may pursue regulatory approval;

•

future agreements with third parties in connection with preclinical and clinical development as well as the manufacture and commercialization of product candidates, if approved for commercial use;

•

our ability to attract customers for any approved products;

•

the effect of litigation, complaints or adverse publicity on our business;

•

our ability to expand our sales force to address effectively the new indications, geographies and types of organizations we intend to target;

•

our ability to forecast and maintain an adequate rate of revenue growth and appropriately plan our expenses;

•

our liquidity and working capital requirements;

•

our ability to attract and retain qualified employees and key personnel;

•

our ability to protect and enhance our brand and intellectual property;

•

the costs related to defending intellectual property infringement and other claims;

•

privacy, data security, and data protection laws, actual or perceived privacy or data breaches or other data security incidents, or the loss of data;

•

general macroeconomic conditions, and any related impacts from rising inflation, interest rates or geopolitical conflict;

•

future regulatory, judicial, and legislative changes in our industry;

•

future arrangements with, or investments in, other entities or associations, products, services or technologies;

•

our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and the increased expenses and administrative workload associated with being a public company.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties

and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. We disclaim any intention or obligation to publicly update or revise any forward-looking statements for any reason or to conform such statements to actual results or revised expectations, except as required by law.

Table of Contents


		Page
	PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	64
EXHIBIT INDEX		64
SIGNATURES		65

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Impel” and the “Company” refer to Impel Pharmaceuticals Inc. and its consolidated subsidiary. Impel, Impel Pharmaceuticals Inc., the Impel logo and other trade names, trademarks or service marks of Impel are the property of Impel Pharmaceuticals Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

IMPEL PHARMACEUTICALS INC.

Condensed Consolidated Balance Sheet

(In thousands, except share and per share data)

(Unaudited)


	March 31, 2023			December 31, 2022

Assets
Current assets:
Cash and cash equivalents	$	35,465		$	60,654
Trade receivables, net		6,280			7,444
Inventory		8,014			8,427
Prepaid expenses and other current assets		2,125			3,284
Total current assets		51,884			79,809
Property and equipment, net		4,081			3,863
Operating lease right-of-use assets		4,833			3,132
Other assets		3,931			1,746
Total assets	$	64,729		$	88,550
Liabilities and stockholders’ (deficit) equity
Current liabilities:
Accounts payable	$	6,133		$	6,092
Accrued and other liabilities		11,723			12,503
Current portion of deferred royalty obligation		2,690			2,027
Current portion of operating lease liability		1,736			1,541
Total current liabilities		22,282			22,163
Operating lease liability, net of current portion		3,074			1,573
Deferred royalty obligation, net of current portion		64,183			60,899
Long-term debt		48,095			48,072
Total liabilities		137,634			132,707
Commitments and contingencies (Note 6)
Stockholders’ (deficit) equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized: none issued		—			—
Common stock, $0.001 par value; 300,000,000 shares authorized; 23,746,257 and 23,739,313 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		24			24
Additional paid-in capital		278,248			276,929
Accumulated deficit		(351,177	)		(321,110	)
Total stockholders’ (deficit) equity		(72,905	)		(44,157	)
Total liabilities and stockholders’ (deficit) equity	$	64,729		$	88,550

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

IMPEL PHARMACEUTICALS INC.

Condensed Consolidated Statement of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Product revenue, net	$	4,372		$	1,759
Cost of goods sold		2,285			1,033
Gross profit		2,087			726
Operating expenses:
Research and development		3,003			3,650
Selling, general and administrative		22,037			19,799
Restructuring		1,483			—
Total operating expenses		26,523			23,449
Loss from operations		(24,436	)		(22,723	)
Other income (expense), net :
Interest income (expense), net		(2,933	)		(4,427	)
Other income (expense), net		(2,698	)		180
Total other income (expense), net		(5,631	)		(4,247	)
Loss before income taxes		(30,067	)		(26,970	)
Provision (benefit) for income taxes		—			—
Net loss and comprehensive loss	$	(30,067	)	$	(26,970	)
Net loss per share - basic and diluted	$	(1.27	)	$	(1.17	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		23,745,871			23,143,773

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

IMPEL PHARMACEUTICALS INC.

Condensed Consolidated Statement of Changes in Stockholders’ (Deficit) Equity

(In thousands, except share data)

(Unaudited)


	Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			(Deficit) Equity
Balance — December 31, 2022		23,739,313	$	24	$	276,929	$	(321,110	)	$	(44,157	)
Stock-based compensation expense		—		—		1,319		—			1,319
Release of restricted stock units		6,944		—		—		—			—
Net loss and comprehensive loss		—		—		—		(30,067	)		(30,067	)
Balance — March 31, 2023		23,746,257	$	24	$	278,248	$	(351,177	)	$	(72,905	)


	Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance — December 31, 2021		23,123,062	$	23	$	267,283	$	(214,798	)	$	52,508
Stock-based compensation expense		—		—		1,795		—			1,795
Issuance of common stock upon the exercise of stock options		50,235		—		149		—			149
Net loss and comprehensive loss		—		—		—		(26,970	)		(26,970	)
Balance — March 31, 2022		23,173,297	$	23	$	269,227	$	(241,768	)	$	27,482

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

IMPEL PHARMACEUTICALS INC.

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(30,067	)	$	(26,970	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		1,319			1,795
Depreciation and amortization		272			310
Non-cash lease expense		392			232
Non-cash interest expense and amortization of debt discount and issuance costs		1,100			484
Loss on early extinguishment of debt		—			3,251
Change in fair value of derivatives		2,870			—
Change in fair value of warrant liabilities		(182	)		(187	)
Write-down of inventory to net realizable value		829			—
Long-lived asset impairment		417			—
Changes in operating assets and liabilities:
Accounts receivable		1,164			(2,534	)
Inventory		(1,117	)		(2,672	)
Prepaid expenses and other current assets		1,158			(777	)
Other assets		(19	)		—
Accounts payable		41			2,628
Accrued liabilities		(1,923	)		448
Operating lease		(397	)		(219	)
Net cash used in operating activities	$	(24,143	)	$	(24,211	)
Cash flows from investing activities:
Purchases of property and equipment		(1,046	)		(8	)
Net cash used in investing activities	$	(1,046	)	$	(8	)
Cash flows from financing activities:
Proceeds from deferred royalty obligation, net of issuance costs		—			49,774
Proceeds from issuance of long-term debt, net of issuance costs		—			48,774
Payments on long-term debt, including final payment		—			(32,853	)
Proceeds from issuance of common stock upon exercise of stock options		—			149
Net cash provided by financing activities	$	—		$	65,844
Net (decrease) increase in cash and cash equivalents		(25,189	)		41,625
Cash — Beginning of period		60,654			88,212
Cash — End of period	$	35,465		$	129,837
Supplemental disclosures of cash flow information:
Right-of-use asset obtained in exchange for new operating lease liability	$	2,093		$	2,812
Accrued inventory purchases		1,465			—
Recognition of derivative liabilities		—			1,905
Purchase of property and equipment included in accounts payable and accrued liabilities		166			—
Debt issuance costs included in accounts payable and accrued liabilities		—			2,569

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

IMPEL PHARMACEUTICALS INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Description of Business

Impel Pharmaceuticals Inc. (“the Company”, "we", and "our"), is a commercial-stage biopharmaceutical company focused on the development and commercialization of transformative therapies for patients suffering from diseases with high unmet medical needs, with an initial focus on diseases of the central nervous system, or CNS. The Company's lead product, Trudhesa™ (dihydroergotamine mesylate) Nasal Spray was approved by the U.S. Food and Drug Administration ("FDA") in September of 2021. Using the Company’s proprietary Precision Olfactory Delivery (POD®) technology, Trudhesa™ gently delivers dihydroergotamine mesylate (DHE), a proven, well-established therapeutic, quickly to the bloodstream through the vascular-rich upper nasal space.

The Company’s strategy is to pair its POD®, upper nasal delivery technology with well-understood therapeutics or other therapeutics where rapid vascular absorption is preferred to drive therapeutic benefit, improve patient outcomes, reduce drug development risk and expand the commercial opportunity within its target diseases. The Company was incorporated under the laws of the State of Delaware on July 24, 2008, maintains its headquarters and principal operations in Seattle, Washington. In April of 2022, the Company changed its name from Impel NeuroPharma, Inc. to Impel Pharmaceuticals Inc.

Liquidity and Capital Resources

From the Company’s inception through March 31, 2023, it raised an aggregate of $397.8 million in proceeds from the issuance of its common stock, proceeds pursuant to the Revenue Interest Financing Agreement (deferred royalty obligation), sale and issuance of redeemable convertible preferred stock, convertible notes, debt and warrants. The Company had a cash and cash equivalents balance of $35.5 million as of March 31, 2023. The Company currently has an effective 2022 Shelf Registration Statement on file with the Securities and Exchange Commission ("SEC"). The 2022 Shelf Registration Statement permits the offering, issuance and sale by the Company of up to an aggregate offering price of $200.0 million of common stock, preferred stock, debt securities, warrants, subscription rights and/or units in one or more offerings and in any combination.

Further, the Senior Credit Agreement with Oaktree Fund Administration, LLC as administrative agent, and the lenders party thereto, or collectively Oaktree, as further described in Note 8, requires maintaining a minimum of $12.5 million in unrestricted cash and cash equivalents on hand to avoid an event of default under the Senior Credit Agreement. Based on our cash and cash equivalents on hand of approximately $35.5 million at March 31, 2023, the Company estimates that it will need to raise additional capital to avoid defaulting under its $12.5 million minimum cash liquidity covenant. Among other loan covenant requirements, the Senior Credit Agreement also requires the Company to provide an audit opinion of its annual financial statements not subject to any "going concern" or like qualification or exception or explanatory paragraph of going concern footnote, however, any such audit report shall not be considered qualified due to the inclusion of an explanatory paragraph in the audit opinion based on the impending maturity date of any indebtedness within twelve months from the date of issuance of these financial statements, the prospective breach of any financial covenant hereunder or liquidity issues due to ordinary course liabilities. If the Company defaults under its Senior Credit Agreement, the lenders may accelerate all of the Company's repayment obligations and take control of its pledged assets. The lenders could declare the Company in default under its debt obligation upon the occurrence of any event that the lenders interpret as having a material adverse effect as defined under the Senior Credit Agreement and the Revenue Interest Financing Agreement, thereby requiring the Company to repay the loans immediately or to attempt to reverse the lenders’ declaration through negotiation or litigation. On March 22, 2023, the Company entered into the Oaktree Letter Agreement in connection with its Senior Credit Agreement, to obtain a waiver from Oaktree of any default or event of default arising from the going concern explanatory paragraph included in the report of its Independent Registered Public Accounting Firm on its audited consolidated financial statements for the year ended December 31, 2022.

The Company plans to address this condition through additional equity financings, or through other capital sources, including collaborations with other companies or other strategic transactions. To the extent that the Company may need to raise additional funds by issuing equity securities, its stockholders may experience significant dilution. If sufficient funds on acceptable terms are not available when needed, the Company could be required to reduce operating expenses and reduce the scope of its commercialization plans for Trudhesa. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to achieve its intended business objectives. The accompanying financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and rules and regulations of the SEC for interim financial reporting. The condensed consolidated financial statements include the operations of Impel Pharmaceuticals Inc., and its wholly owned Australian subsidiary. All intercompany balances and transactions have been eliminated upon consolidation.

The condensed consolidated balance sheet as of March 31, 2023, the condensed consolidated statements of operations and comprehensive loss, changes in stockholders’ (deficit) equity and cash flows for the three months ended March 31, 2023 and 2022 are unaudited. These unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position as of March 31, 2023 and its results of operations and cash flows for the three months ended March 31, 2023 and 2022. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three month period is also unaudited. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2022 included in its Annual Report on Form 10-K filed with the SEC on March 27, 2023.

Our significant accounting policies are described in Note 2 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. Updates to our accounting policies, including impacts from the adoption of new accounting standards, are discussed below in this Note 2.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates such estimates and assumptions for continued reasonableness. In particular, management makes estimates with respect to revenue recognition, inventory valuation, the fair values of derivative liabilities, stock-based compensation expense, deferred royalty obligation, lease accounting, income taxes, and additional charges as a result of, or that are associated with, any restructuring initiative as well as impairment and related charges. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.

Segments

The Company’s chief operating decision maker is its Chairman and Chief Executive Officer. The Chairman and Chief Executive Officer reviews financial information on an aggregate basis for the purposes of evaluating financial performance and allocating the Company’s resources. Accordingly, the Company has determined that it operates in one segment.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivables. The Company’s cash is deposited with high credit quality financial institutions. At times such deposits may be in excess of the Federal Depository Insurance Corporation insured limits.

Selling, General and Administrative Expense

Selling, general and administrative expenses are primarily comprised of compensation and benefits associated with sales and marketing, finance, human resources, legal, information technology and other administrative personnel, outside marketing, advertising and legal expenses and other general and administrative costs. The Company expenses the cost of advertising, including promotional expenses, as incurred. Advertising expenses were $2.8 million and $2.1 million for the three months ended March 31, 2023 and 2022, respectively

Recently Adopted Accounting Pronouncements

In June 2016 the FASB issued Accounting Standard Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). This introduces new methodology for recognition of credit losses - the current expected credit loss (“CECL”)

method. The CECL method requires the recognition of all losses expected over the life of a financial instrument upon origination or purchase of the instrument, unless the company elects to recognize such instruments at fair value with changes in profit and loss. The Company adopted this guidance as of January 1, 2023. The adoption did not have a material impact to the Company or its disclosures.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

3. Fair Value Measurements

The following table summarizes the fair value of the Company’s financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	79	$	79
Derivative liability - Deferred royalty obligation		—		—		14,000		14,000
Derivative liability - Oaktree term loan		—		—		430		430
Total financial liabilities	$	—	$	—	$	14,509	$	14,509


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	261	$	261
Derivative liability - Deferred royalty obligation		—		—		11,000		11,000
Derivative liability - Oaktree term loan		—		—		560		560
Total financial liabilities	$	—	$	—	$	11,821	$	11,821

The following table summarizes the change in the fair value of the common stock warrant liabilities for the three months ended March 31, 2023 (in thousands):


Beginning balance as of December 31, 2022	$	261
Changes in fair value		(182	)
Ending balance as of March 31, 2023	$	79

The following table summarizes the change in the estimated fair value of the Company’s derivative liabilities for the three months ended March 31, 2023 (in thousands):


Beginning balance as of December 31, 2022	$	11,560
Change in fair value of derivatives - Deferred royalty obligation		3,000
Change in fair value of derivatives - Oaktree term loan		(130	)
Ending balance as of March 31, 2023	$	14,430

Fair values of the Company’s common stock warrants and the derivative liabilities are based on significant inputs not observed in the market, and thus represent a Level 3 measurement.

The Senior Credit Agreement with Oaktree contains embedded derivatives requiring bifurcation as a derivative instrument. The derivative liability related to the Oaktree term loan is netted with the term loan in the consolidated financial statements (see Note 6 for additional details). The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other expense, net. The fair value of the embedded derivative liabilities associated with the term loan was estimated using a probability weighted discounted cash flow model to measure the fair value. This involves significant Level

3 inputs and assumptions including an (i) estimated probability and timing of a change in control and event of default, and (ii) our risk-adjusted discount rate.

The embedded derivative liability associated with our deferred royalty obligation (see Note 8) is measured at fair value using an option pricing Monte Carlo simulation model and is netted with the deferred royalty obligation in the consolidated financial statements. The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other expense, net. The assumptions used in the option pricing Monte Carlo simulation model include:(i) the probability-weighted net sales of Trudhesa; (ii) our risk-adjusted discount rate; (iii) our cost of debt; and (iv) the probability of a change in control and event of default occurring during the term of the instrument. The effect of an increase or decrease of 5% of the probability of (i) a change in control, (ii) event of default and (iii) forecast net sales of Trudhesa, would result in a gain of $1.9 million or a loss of $1.8 million, respectively. The increase in the fair value of the embedded derivative liability at March 31, 2023 was based on changes in the expectations of timing and probability of occurrence of a change in control and event of default.

Pursuant to the July 2021 loan and security agreement with Oxford Finance LLC and Silicon Valley Bank (the "Loan Agreement"), the Company issued common stock warrants (see Note 8). The Company's warrants are not indexed to the Company’s common stock in the manner contemplated by ASC 815-40 because the warrant provides for an adjustment to the exercise price upon an acquisition. The Warrants were measured at fair value at inception and are subsequently remeasured at each reporting date with changes in fair value recognized as a component of other income (expense), net in the consolidated statement of operations and other comprehensive loss. The Company determined the fair value of the common stock warrants using the Black-Scholes-Merton option pricing model based on significant unobservable inputs. The significant unobservable inputs used in the fair value measurement of the warrant liabilities is the volatility rate which is based on the historical volatility of a set of peer companies, that are publicly traded.

4. Corporate Restructuring

On February 22, 2023, the Company announced a strategic update and corporate restructuring (the “Restructuring”) to reprioritize spend to capitalize on the continued positive momentum in payor and prescriber uptake of Trudhesa and halt research and development efforts on product candidates including INP105 to address acute agitation and aggression in autism spectrum disorder. As part of the Restructuring, the Company reduced headcount by 16% through a reduction in its workforce. The reduction in workforce was completed by March 31, 2023.

The Company incurred the following Restructuring charges consisting of winding down costs, exit and other related costs, impairments and write-offs of long-lived assets, and severance and employee-related costs (in thousands):


	Three Months Ended March 31, 2023
Severance and employee-related costs	$	1,007
Long-lived asset impairments and write-offs		417
Supplemental one-time termination charges		59
Total	$	1,483

The Company estimated that it will incur total cash expenses of approximately $1.0 million related to the Restructuring of which $0.5 million was paid in the first quarter of 2023. The cash payments were primarily comprised of severance and other related costs.

The Company also completed an evaluation of the impact of the Restructuring on the carrying value of its long-lived assets, such as property and equipment. This process includes evaluating the estimated remaining lives, significant changes in the use, and potential impairment charges related to its long-lived assets. Based on its evaluation, the Company determined that its long-lived assets were impaired as of March 31, 2023, and it recognized an impairment charge of $0.4 million related to its long-lived assets for the three months ended March 31, 2023. The Company may incur additional costs not currently contemplated due to events that may occur because of, or that are associated with, the Restructuring.

The following table summarizes the activity related to the restructuring liabilities included in accrued liabilities on the condensed consolidated balance sheet associated with our restructuring initiatives for the three months ended March 31, 2023 (in thousands):


	March 31, 2023
Balance as of December 31, 2022	$	—
Restructuring, impairment and related charges		1,483
Cash payments		(542	)
Noncash activities		(470	)
Balance as of March 31, 2023	$	471

5. Balance Sheet Components

Inventory

Inventories consisted of the following (in thousands):


	March 31, 2023			December 31, 2022
Raw materials	$	5,078		$	2,461
Work-in-process		4,064			4,191
Finished goods		2,597			3,334
Total inventories		11,739			9,986
Less: long-term inventories		(3,725	)		(1,559	)
Total current inventories	$	8,014		$	8,427

Inventory amounts written down to net realizable value in the consolidated statements of operations and comprehensive loss included a charge of $0.8 million to cost of goods sold during the three months ended March 31, 2023, related to excess and obsolescence reserves associated with Trudhesa.

The Company classifies its inventories based on its anticipated levels of sales, any inventory in excess of its normal operating cycle is classified as long-term within Other Assets on its consolidated balance sheets.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Other prepaids	$	1,006	$	1,587
Other current assets		680		649
Prepaid insurance		426		1,036
Tax refund receivable		13		12
Total prepaid expenses and other current assets	$	2,125	$	3,284

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Accrued compensation	$	3,493	$	5,287
Accrued sales discounts and allowances		3,278		3,376
Accrued other liabilities		2,838		1,662
Accrued professional services		1,948