0000950170-23-021513 | 10-Q | XBRL Viewer | Impel Pharmaceuticals INC

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Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2023	May 08, 2023
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2023
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Trading Symbol	IMPL
Entity Registrant Name	IMPEL PHARMACEUTICALS INC.
Entity Central Index Key	0001445499
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity File Number	001-40353
Entity Tax Identification Number	26-3058238
Entity Address, Address Line One	201 Elliott Avenue West
Entity Address, Address Line Two	Suite 260
Entity Address, City or Town	Seattle
Entity Address, State or Province	WA
Entity Address, Postal Zip Code	98119
City Area Code	206
Local Phone Number	568-1466
Entity Common Stock, Shares Outstanding		23,749,005
Entity Interactive Data Current	Yes
Title of 12(b) Security	Common Stock, par value $0.001 per share
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	DE
Document Quarterly Report	true
Document Transition Report	false

Condensed Consolidated Balance Sheet (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
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
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	0	0
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

Condensed Consolidated Balance Sheet (Parenthetical) (Unaudited) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares Issued	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	23,746,257	23,739,313
Common stock, shares outstanding	23,746,257	23,739,313

Condensed Consolidated Statement of Operations and Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Statement [Abstract]
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	0	0
Net loss and comprehensive loss	$ (30,067)	$ (26,970)
Net loss per share - basic	$ (1.27)	$ (1.17)
Net loss per share - diluted	$ (1.27)	$ (1.17)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic	23,745,871	23,143,773
Weighted-average shares used in computing net loss per share attributable to common stockholders, diluted	23,745,871	23,143,773

Condensed Consolidated Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders Deficit (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit
Beginning Balance at Dec. 31, 2021	$ 52,508	$ 23	$ 267,283	$ (214,798)
Beginning Balance, Shares at Dec. 31, 2021		23,123,062
Stock-based compensation expense	1,795		1,795
Issuance of common stock upon the exercise of stock options	149		149
Issuance of common stock upon the exercise of stock options, Shares		50,235
Net loss and comprehensive loss	(26,970)			(26,970)
Ending Balance at Mar. 31, 2022	27,482	$ 23	269,227	(241,768)
Ending Balance, Shares at Mar. 31, 2022		23,173,297
Beginning Balance at Dec. 31, 2022	(44,157)	$ 24	276,929	(321,110)
Beginning Balance, Shares at Dec. 31, 2022		23,739,313
Release Of Restricted Stock Units Shares		6,944
Stock-based compensation expense	$ 1,319		1,319
Issuance of common stock upon the exercise of stock options, Shares	0
Net loss and comprehensive loss	$ (30,067)			(30,067)
Ending Balance at Mar. 31, 2023	$ (72,905)	$ 24	$ 278,248	$ (351,177)
Ending Balance, Shares at Mar. 31, 2023		23,746,257

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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- Definition

Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.

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Condensed Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 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	0	3,251
Change in fair value of derivatives	2,870	0
Change in fair value of warrant liabilities	(182)	(187)
Write-down of inventory to net realizable value	829	0
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)	0
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	0	49,774
Proceeds from issuance of long-term debt, net of issuance costs	0	48,774
Payments on long-term debt, including final payment	0	(32,853)
Proceeds from issuance of common stock upon exercise of stock options	0	149
Net cash provided by financing activities	0	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	0
Recognition of derivative liabilities	0	1,905
Purchase of property and equipment included in accounts payable and accrued liabilities	166	0
Debt issuance costs included in accounts payable and accrued liabilities	$ 0	$ 2,569

Organization and Description of Business

3 Months Ended

Mar. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Description of Business

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.

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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.

Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Fair Value Disclosures [Abstract]

Fair Value Measurements

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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Corporate Restructuring

3 Months Ended

Mar. 31, 2023

Restructuring and Related Activities [Abstract]

Corporate Restructuring

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

Balance Sheet Components

3 Months Ended

Mar. 31, 2023

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Components

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		1,808
Accrued construction in progress		166		370
Total accrued liabilities	$	11,723	$	12,503

Commitments and Contingencies

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

. Commitments and Contingencies

Legal Proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company did not accrue any costs as of March 31, 2023 and December 31, 2022, as no contingent liabilities were deemed to be probable.

Leases

3 Months Ended

Mar. 31, 2023

Leases [Abstract]

Leases

. Leases

Real Estate Leases

In April 2022 the Company entered into a non-cancelable operating lease for 8,045 square feet of office space. Rent is payable monthly, increasing by approximately 2.5% each year. The term of the lease is 127 months, and commenced in the first quarter of 2023. Upon commencement, the Company recorded a right-of-use asset and a lease liability on the Condensed Consolidated Balance Sheet.

In September 2017, the Company entered into a non-cancelable operating lease for 11,256 square feet of office and laboratory space. Rent is payable monthly, increasing by approximately 3% each year. The initial term of the lease was 3 years and the Company renewed the lease for an additional four years with an expiration date of August 31, 2024.

Commercial Fleet Leases

During 2022 and in first quarter 2023, the Company took delivery of a portion of its commercial car fleet for its salesforce. Each commercial fleet lease has a term of 12 months including options to renew for a total of 54 months, we believe a total of 36 months is deemed reasonable to exercise. In addition, the Company can terminate the vehicle leases at any time without a significant penalty. For the discount rate used in the commercial fleet lease, the Company used the weighted-average rate implicit in the commercial fleet leases.

As of March 31, 2023, the Company was not party to any finance leases.

The following table reconciles the Company’s undiscounted operating lease cash flows to its operating lease liability (in thousands):


	March 31, 2023
Remaining 2023	$	1,477
2024		1,713
2025		766
2026		288
2027		1,829
Total undiscounted cash flows		6,073
Less: imputed interest		(1,263	)
Total lease liabilities		4,810
Less: current portion		(1,736	)
Lease liabilities	$	3,074

The weighted average remaining lease term and the weighted average discount rate used to determine the operating lease liability were as follows:



	March 31, 2023
Weighted average remaining lease term (years)		4.8
Weighted average discount rate		7.6	%

Operating lease expense was $0.5 and $0.3 million for the three months ended March 31, 2023 and 2022, respectively. Variable lease expense was $0.1 million for operating leases during the three months ended March 31, 2022. Rent expense recognized for short term leases was $0.1 million for the three months ended March 31, 2022. The Company did not incur any variable lease expense and rent expense for short term leases for the three months ended March 31, 2023.

Debt

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

Debt

. Long-Term Obligations

Oaktree Loan and Security Agreement

On March 17, 2022 (“Closing Date”), the Company entered into a Senior Credit Agreement with Oaktree Fund Administration, LLC as administrative agent, and the lenders party thereto (collectively “Oaktree”) under which it borrowed $50.0 million.

The term loan has a maturity date of March 17, 2027, initially bearing interest at the Secured Overnight Financing Rate (“SOFR”) + 8.75% (with a SOFR floor of 1.00%). Once Trudhesa achieves at least $125.0 million in net sales over a trailing 12-month period, interest will step down to SOFR + 8.00% (with a SOFR floor of 1.00%). The Company is required to make quarterly interest-only payments until the fourth anniversary of the Closing Date, after which the Company is required to make quarterly amortizing payments, with the remaining balance of the principal plus accrued and unpaid interest due at maturity. Prepayments of the loan, in whole or in part, will be subject to early prepayment fee which declines each year until the fourth anniversary date of the Closing Date, after which no prepayment fee is required. The Company is also required to pay an exit fee upon any payment or prepayment equal to 2.0% of the aggregate principal amount of the loans funded under the Senior Credit Agreement. The Senior Credit Agreement contains customary representations, warranties and events of default. 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. 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. On March 22, 2023, the Company entered into a letter agreement with Oaktree in connection with its Senior Credit Agreement, to obtain a waiver from Oaktree for 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. Under the Senior Credit Agreement, the Company is subject to a minimum liquidity requirement of $12.5 million unrestricted cash balance at all times.

The Company identified a number of embedded derivatives that require bifurcation from the term loan and that were separately accounted for in the consolidated financial statements as one compound derivative liability. Certain of these embedded features include change in control provisions, events of default and contingent rate increases and were determined to qualify as an embedded derivative under ASC 815-40. The embedded derivative and the term loan obligation have been netted to result in a net embedded derivative liability and is classified as a Level 3 financial liability in the fair value hierarchy as of March 31, 2023. The fair value of the embedded derivative liabilities associated with the term loans was estimated using the discounted cash flow method under the income approach. This involves significant Level 3 inputs and assumptions including an estimated probability and timing of a change in control and events of default (see Note 3 for additional details). The Company re-evaluates this assessment each reporting period and records any gains or losses in other income (expense). The initial recognition of the embedded derivative liability upon issuance of the Oaktree term loan was $0.4 million and is included in the term loan obligation in the consolidated Balance Sheets. At March 31, 2023 and December 31, 2022 the fair value of the embedded derivative liability was $0.4 million and $0.6 million, respectively.

In connection with the issuance of the term loan, the Company recorded debt discount and debt issuance costs of $2.9 million. The discount and issuance costs are amortized over the life of the term loan. Interest expense for the three months ended March 31, 2023 and 2022 was $1.6 million and $0.2 million, respectively, and is inclusive of non-cash amortization of the debt discount and debt issuance costs and accretion of final payment. The fair value of the term loan at March 31, 2023 and December 31, 2022 was $52.2 million and $51.9 million, respectively.

A portion of the loan proceeds were used to repay in full the $32.9 million aggregate principal amount (including the prepayment fee and final payment fee) of loans outstanding owed to Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and together with Oxford, the “Prior Lenders”) by the Company in the first quarter of 2022.

Deferred Royalty Obligation

On March 17, 2022, the Company entered into a Revenue Interest Financing Agreement (“RIF” or “Deferred Royalty Obligation”) with certain purchasers party thereto (collectively “Purchasers”) and Oaktree Fund Administration, LLC as administrative agent, pursuant to which the Company sold to the Purchasers the right to receive payments from us at a tiered percentage (the “Applicable Tiered Percentage”), of future net revenues of Trudhesa, including worldwide net product sales and upfront payments, and milestones, (collectively, “the Revenue Interests”). Under the terms of the agreement, the Company received $50.0 million (“Investment Amount”), less transaction expenses, in exchange for tiered royalty payments on worldwide net sales from Trudhesa, as follows: 7.75% on annual United States net sales up to $150.0 million; 4.75% on annual United States net sales between $150 million and $300 million; 0.75% on

annual United States net sales greater than $300.0 million; and 10% of any upfront payments, milestone payments and royalties received by us from licensing or partnerships relating to Trudhesa outside the United States.

The Purchaser’s rights to receive the Revenue Interests shall terminate on the date on which the Purchasers have received payments equal to 175% of the funded portion of the Investment Amount including the aggregate of all payments made to the Purchasers as of such date, unless the Revenue Interest Financing Agreement is earlier terminated. If the Purchasers have not received payments equal to the 175% of the funded portion of the Investment Amount by the nine-year anniversary of the initial closing date, among other things, the Company shall pay the Purchasers an amount equal to the funded portion of the Investment Amount plus a specific annual rate of return less payments previously received.

Under the RIF, the Company has an option (the “Call Option”) to repurchase future Revenue Interests at any time until the third anniversary of the Closing Date upon advance written notice. Additionally, the Purchasers have an option (the “Put Option”) to terminate the RIF and to require the Company to repurchase future Revenue Interests upon enumerated events such as a bankruptcy event, a material adverse effect or a change of control. If the Put Option or the Call Option are exercised, the required repurchase price is (i) as of any date before the one-year anniversary of the Closing Date, an amount equal to (a) 1.25 multiplied by (b) the Investment Amount, (ii) as of any date on or after the one-year anniversary of the Closing Date and before the two-year anniversary of the Closing Date, an amount equal to (a) 1.40 multiplied by (b) the Investment Amount, (iii) as of any date on or after the two-year anniversary of the Closing Date and before the three-year anniversary of the Closing Date, an amount equal to (a) 1.55 multiplied by (b) the Investment Amount, and (iv) as of any date on or after the three-year anniversary of the Closing Date, an amount equal to (a) 1.75 multiplied by (b) the Investment Amount, in each case net of the sum of any payments received by the Purchasers prior to such Put Option Closing Date or Call Option Closing Date, as applicable.

If the Purchasers have not received 100% of the Investment Amount by February 15, 2027, the first tier royalty rate will be subject to an increase from 7.75% to 10.75%. As of March 31, 2023, the Company has made $0.9 million in payments to the Purchasers. The Company's obligations under the RIF are secured, subject to customary permitted liens and other agreed upon exceptions and subject to an intercreditor agreement with Oaktree Fund Administration, LLC, as administrative agent for the lenders under the Senior Credit Agreement, by a perfected security interest in (i) accounts receivable arising from net sales of Trudhesa and (ii) intellectual property that is claiming or covering Trudhesa, or any method of using, making or manufacturing Trudhesa, including regulatory approvals, clinical data and all other Trudhesa assets.

The Company evaluated the terms of the deferred royalty obligation and concluded that the features of the Investment Amount are similar to those of a debt instrument. Accordingly, the Company accounted for the transaction as long-term debt recorded at amortized cost using the effective interest method. The Company further evaluated the terms of the debt and determined that the Put Options under the RIF that are exercisable by Purchasers upon certain contingent events were determined to be embedded derivatives requiring bifurcation and separately accounted for as a single compound derivative instrument (see Note 3). The Put Option has been determined to qualify as an embedded derivative under ASC 815-40. The embedded derivative and the deferred royalty obligation have been netted to result in a net embedded derivative liability as of March 31, 2023 and December 31, 2022. The embedded derivative is classified as a Level 3 financial liability in the fair value hierarchy. The Company determined the fair value of the derivative using an option pricing Monte Carlo simulation model taking into account the probability of change of control or event of default occurring and potential repayment amounts and timing of such payments that would result under various scenarios, as further described in Note 3, “Fair Value of Financial Instruments”. The Company recorded the initial fair value of the derivative liability of $1.5 million which was included in the deferred royalty obligation in the consolidated Balance Sheet. The Company remeasures the derivative liability to fair value each reporting period until the termination of the RIF. At March 31, 2023 and December 31, 2022 the fair value of the derivative liability is $14.0 million and $11.0 million, respectively.

The effective interest rate as of March 31, 2023 was 10.4%. In connection with the deferred royalty obligation, we incurred debt issuance costs totaling $1.4 million. Debt issuance costs have been netted against the deferred royalty obligation and are being amortized over the estimated term of the debt using the effective interest method, adjusted on a prospective basis for changes in the underlying assumptions and inputs. The assumptions used in determining the expected repayment term of the obligation and amortization period of the issuance costs requires that we make estimates that could impact the short and long-term classification of these costs, as well as the period over which these costs will be amortized.

The Company periodically assesses the amount and timing of expected royalty payments using a combination of internal projections and forecasts from external sources. The estimates of future net product sales (and resulting royalty payments) are based on key assumptions including population, penetration, probability of success, and sales price, among others. To the extent such payments are greater or less than the Company’s initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the deferred royalty obligations and the effective interest rate. Interest expense recognized for the three months ended March 31, 2023 and 2022, $1.3 million and $0.3 million, respectively. The fair value of the deferred royalty obligation at March 31, 2023 and December 31, 2022 is $50.4 million and $48.9 million, respectively, inclusive of the fair value of the derivative liability.

Oxford and Silicon Valley Bank Term Loan

In July 2021, the Company entered into the Loan Agreement with the “Prior Lenders”, to lend the Company up to an aggregate of $50.0 million in a series of term loans (the “Term Loan”). The term loans accrued interest at the greater of (i) 7.95% or (ii) the sum of (a) the greater of (1) the thirty (30) day U.S. LIBOR or (2) 0.11%, plus (b) 7.84% and were subject to a prepayment fee of 1.0% to 3.0% depending upon when the prepayment occurs. On repayment of the Term Loans, the Company was required to make a final payment fee to the Prior Lenders equal to 6.5% of the original principal amount of the Term Loans.

On March 17, 2022, upon entering into the Senior Credit Agreement, the Company repaid the $30.0 million of outstanding principal, interest, including prepayment and final payment fees owed under the Loan Agreement to the Prior Lenders. The Company recorded a loss of $3.3 million on the early extinguishment of debt related to the unamortized debt discount associated with the fair value of the warrants, final payment fee, and unamortized debt issuance costs. The loss on early extinguishment was recognized as a component of interest expense, net in the consolidated statement of operations and other comprehensive loss. Interest expense for the three months ended March 31, 2022 was $0.7 million and was inclusive of non-cash amortization in the amount of $0.2 million related to the amortization of the debt issuance costs and accretion of final payment.

In connection with entering into the Loan Agreement and borrowings under the agreement, the Company issued warrants to purchase 71,522 and 23,166, shares of its common stock, respectively, to the Prior Lenders at a per share exercisable price of $8.39 per share and $12.95 per share, respectively, all with ten year terms.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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+ Details

Common Stock

3 Months Ended

Mar. 31, 2023

Equity [Abstract]

Common Stock

9. Common Stock

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors from inception.

The Company has reserved the following shares of common stock for issuance, on an as-converted basis, as follows:


	March 31, 2023		December 31, 2022
Stock incentive plans		7,779,248		6,351,263
Exercise of common stock warrants		94,688		94,688
Total		7,873,936		6,445,951

Open Market Sales Agreement

In May 2022, the Company entered into a sales agreement with Cowen and Company, LLC, as a sales agent, pursuant to which the Company may offer and sell shares of its common stock, from time to time, up to an aggregate amount of gross sales proceeds of $50.0 million through an at-the-market Program (the "2022 ATM Program"), under the 2022 Shelf Registration Statement. As of March 31, 2023, $45.0 million in shares of common stock remain eligible for sale under the 2022 ATM Program.

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

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+ Details

Stock Incentive Plans

3 Months Ended

Mar. 31, 2023

Share-Based Payment Arrangement [Abstract]

Stock Incentive Plans

10. Stock Incentive Plans

As of March 31, 2023, the Company’s equity incentive plans authorized a total of 7,779,248 shares, of which 2,746,359 shares are available for future grant, and 5,065,389 shares are outstanding.

The Company’s 2021 Stock Incentive Plan, (the "2021 Plan"), provides for annual increase in the number of shares that may be issued under the 2021 Plan automatically on January 1 of each of 2022 through 2031 by the lesser of (a) 5% of the total number of outstanding shares of all classes of its common stock on each December 31 and (b) a number as may be determined by its board of directors.

The Company’s Employee Stock Purchase Plan (the "ESPP"), provides for annual increase in the number of shares that may be issued under the 2021 Plan automatically on January 1 of each of 2022 through 2031 by the lesser of (a) 5% of the total number of outstanding shares of all classes of its common stock on each December 31 and (b) a number as may be determined by its board of directors.

Effective January 1, 2023, the 2021 Plan and ESPP reserves increased by 1,186,965 shares and 237,393 shares, respectively. Changes in shares available for grant under the 2021 Plan during the three months ended March 31, 2023 were as follows:


	Shares Available for Grant
Shares available for grant at December 31, 2022		1,837,854
2021 Plan reserve increase January 1, 2023		1,186,965
ESPP reserve increase January 1, 2023		237,393
Options and restricted units granted		(865,920	)
Options and restricted units forfeited, cancelled, or expired		350,067
Shares available for grant at March 31, 2023		2,746,359

Stock-Based Compensation Expense

Stock-based compensation expense recognized was as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
Cost of goods sold	$	17	$	31
Research and development		170		411
Selling, general and administrative		1,132		1,353
Total stock-based compensation expense	$	1,319	$	1,795

Stock Option Activity

All stock option grants are awarded at fair value on the date of grant. The fair value of stock options is estimated using the Black-Scholes option pricing model and stock-based compensation is recognized on a straight-line basis over the requisite service period. Stock options granted generally become exercisable over a four-year period from the grant date. Stock options generally expire 10 years after the grant date.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company's common stock for those stock options that had exercise prices lower than the fair value of the Company's common stock at March 31, 2023.

A summary of the Company’s stock option activity under its stock option plans was as follows (in thousands, except share and per share data and years):


	Options Outstanding
	Number of Options			Weighted -Average Exercise Price		Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Balance — December 31, 2022		4,275,909		$	8.08		7.5	$	1,038
Authorized		—
Granted		865,920			2.30
Exercised		—			—
Cancelled		(313,940	)		7.91
Balance — March 31, 2023		4,827,889		$	7.18		7.3	$	2
Exercisable — March 31, 2023		2,491,654		$	7.00		5.7	$	2

As of March 31, 2023, there was $10.2 million of total unrecognized compensation cost related to unvested options that are expected to vest. The cost is expected to be recognized over a weighted-average period of 2.6 years.

The fair value of stock option awards granted to employees was estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following assumptions:


	Three Months Ended March 31,
	2023	2022
Expected term (in years)	6.1	6.1
Expected volatility	70.7%-71.3		72.9	%
Risk-free interest rate	3.7% -3.95%	1.70% - 1.98%
Expected dividends	—	—

Restricted Stock Units

During 2021, the Compensation Committee of the Board of Directors approved the Trudhesa Launch Equity Incentive Plan for awards of performance-based restricted stock units ("PSUs") to certain senior executives of the Company. Each award reflects a target number of shares (“Target Shares”) that may be issued to the award recipient. These awards may be earned upon the completion of two-year performance periods ending December 31, 2022, and December 31, 2023. Whether units are earned at the end of the performance period will be determined based on the achievement of certain revenue targets over the performance period. The PSUs also include a performance objective relating to total shareholder return (“TSR”). TSR reflects the change in the value of the Company’s common stock over each performance period. Depending on the revenue achieved and the TSR during the two-year performance periods, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 125% of the Target Shares granted for the 2022 performance period and 0% to 150% of the Target Shares granted for the 2023 performance period.

In the period it becomes probable that the minimum threshold specified in the award will be achieved, we recognize expense for the proportionate share of the total fair value of the PSUs related to the vesting period that has already lapsed for the shares expected to vest and be released. The remaining fair value of the shares expected to vest and be released is expensed on a straight-line basis over the balance of the vesting period. In the event the Company determines it is no longer probable that we will achieve the minimum threshold specified in the award, we reverse all of the previously recognized compensation expense in the period such a determination is made.

The fair value of the Target Shares and restricted stock awards are based on the fair value of the underlying shares on the date of grant. The fair value of the portion of the Target Shares that relate to a relative TSR performance objective was determined using a Monte Carlo simulation analysis to estimate the total shareholder return ranking of the Company among a peer group over the remaining performance periods. The expected volatility of the Company’s common stock at the date of grant was estimated based on the average historical volatilities for comparable publicly traded pharmaceutical companies. The Company used an expected dividend yield of zero. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate two-year performance measurement period.

The fair value of PSUs granted to employees was estimated at the date of grant using the following assumptions:


	December 31, 2021
Contractual term (in years)	2.1
Expected volatility		0.83	%
Risk-free interest rate		0.70	%
Expected dividends	—

As of March 31, 2023, the Company does not expect these PSUs to vest, therefore there was no unrecognized compensation expense. There were no PSUs that vested during the three months ended March 31, 2023 and 205,000 and 237,500 PSUs are outstanding as of March 31, 2023 and December 31, 2022, respectively.

Income Taxes

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

To calculate the interim tax provision, at the end of each interim period the Company estimates the annual effective tax rate and applies that to its quarterly earnings from continuing operations. The effect of changes in the enacted tax laws or rates is recognized in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and judgments including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or the tax environment changes.

The Company’s effective tax rate for the three months ended March 31, 2023 and 2022 differs from the U.S. statutory rate due to the U.S. valuation allowance and foreign income taxed at local statutory rates.

During the three months ended March 31, 2023, the Company reported U.S. pre-tax losses, consistent with prior years to date. The Company has not yet been able to establish a sustained level of profitability in the U.S. or other sufficient significant positive evidence to conclude that its U.S. deferred tax assets are more likely than not to be realized. Therefore, the Company continues to maintain a valuation allowance against its U.S. deferred tax assets.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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+ Details

Defined Contribution Plan

3 Months Ended

Mar. 31, 2023

Retirement Benefits [Abstract]

Defined Contribution Plan

12. Defined Contribution Plan

The Company has a defined contribution retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan allows eligible employees to defer a portion of their annual compensation on a pre-tax or after-tax basis. The Company makes discretionary matching contributions of up to 4% of a participating employee’s salary. For the three months ended March 31, 2023 and 2022, the amount expensed under the plan was $0.3 million and $0.2 million, respectively.

Net Loss Per Share

3 Months Ended

Mar. 31, 2023

Earnings Per Share [Abstract]

Net Loss Per Share

13. Net Loss Per Share

The following outstanding shares of potentially dilutive securities were excluded from the computation of the diluted net loss per share for the periods presented because their effect would have been anti-dilutive:


	Three Months Ended March 31,
	2023		2022
Stock options to purchase common stock		4,827,889		4,060,283
Non-vested PSUs		205,000		485,571
Warrants to purchase common stock		94,688		94,688
Total		5,127,577		4,640,542

Summary of Significant Accounting Policies (Policies)	3 Months Ended
Summary of Significant Accounting Policies (Policies)	Mar. 31, 2023
Accounting Policies [Abstract]
Basis of Presentation and Consolidation	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	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	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	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 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
Recent Accounting Pronouncements	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	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.

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2023

Fair Value Disclosures [Abstract]

Summary of Fair Value, Liabilities Measured on Recurring Basis

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: