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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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For the quarterly period ended September 30, 2020

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OR

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For the transition period from                      to                     

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Commission File Number 001-36464

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Agile Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

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101 Poor Farm Road

Princeton, New Jersey 08540

(Address including zip code of principal executive offices)

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(609) 683-1880

(Registrant’s telephone number, including area code)

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

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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 ◻

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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 ◻

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

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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. ◻

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

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There were 87,434,604 shares of the registrant’s common stock, $0.0001 par value, outstanding as of November 9, 2020.

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Agile Therapeutics, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2020

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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “designed,” “could,” “might,” “will,” “should,” “approximately” or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our current intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned manufacturing and commercialization of Twirla®, the potential market uptake of Twirla and the development of our potential product candidates, the strength and breadth of our intellectual property, our ongoing and planned clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our potential product candidates, the legal and regulatory landscape impacting our business, the degree of clinical utility of our products, particularly in specific patient populations, expectations regarding clinical trial data, our development and validation of manufacturing capabilities, our results of operations, financial condition, liquidity, prospects, growth and strategies, the length of time that we will be able to continue to fund our operating expenses and capital expenditures, our expected financing needs and sources of financing, the industry in which we operate and the trends that may affect the industry or us.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare, regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.

Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include:

•our ability to successfully launch and commercialize Twirla;

•our ability along with the ability of our third-party manufacturer, Corium International, Inc., or Corium, to complete successfully the scale up of the commercial manufacturing process for Twirla, including the qualification and validation of equipment related to the expansion of Corium’s manufacturing facility;

•the rate and degree of market acceptance of Twirla and any of our product candidates;

•the size and growth of the markets for Twirla and our product candidates and our ability to serve those markets;

•the effects of the COVID-19 pandemic on our operations and the operations of third parties we rely on for services such as manufacturing, marketing support and sales support, as well as the effects of the COVID-19 pandemic on our potential customer base;

•regulatory and legislative developments in the United States and foreign countries;

•our available cash and our ability to obtain additional financing to fund our business plan without delay;

•the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

•our inability to timely obtain from Corium sufficient quantities or quality of Twirla and our potential product candidates or other materials required for a clinical trial or other tests or studies;

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•the ability of Corium to produce commercial supply in quantities and quality sufficient to satisfy market demand for Twirla;

•the performance and financial condition of Corium or any of its suppliers;

•our ability to design and successfully complete a post-marketing, long term, prospective observational safety study comparing risks for venous thromboembolism, or VTE, and arterial thromboembolism, or ATE, in new users of Twirla to new users of oral combined hormonal contraceptives, or CHCs, and new users of Xulane in U.S. women of reproductive age using CHCs and conduct a small post-marketing commitment, or PMC, study to assess the residual drug content of Twirla after use;

•our ability to maintain regulatory approval of Twirla and our ability to obtain regulatory approval of our potential product candidates, and the labeling under any approval we obtain;

•our ability to obtain and maintain intellectual property protection for Twirla and our product candidates;

•the success and timing of our clinical trials or other studies, including post-marketing studies for Twirla;

•our plans to develop our other potential product candidates;

•the successful development of our sales and marketing capabilities, including our ability to recruit, train, and retain an effective sales force or failure to build out and implement an effective health care compliance program;

•our ability to retain key employees and recruit the additional personnel we will need to support our commercialization plan for Twirla; and

•our ability to successfully implement our strategy.

Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q. You should also read carefully the factors described in the “Risk Factors” included in Part II, Item 1A of this Quarterly Report and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission on February 20, 2020 to better understand significant risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, any such inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Twirla® is one of our trademarks used in this Form 10-Q.  This Form 10-Q also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this Form 10-Q may appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.

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Agile Therapeutics, Inc.

Part I — Financial Information

ITEM 1. Financial Statements

Agile Therapeutics, Inc.

Balance Sheets

(Unaudited)

(in thousands, except par value and share data)

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See accompanying notes to unaudited financial statements.

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Agile Therapeutics, Inc.

Statements of Operations

(Unaudited)

(in thousands, except per share and share data)

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See accompanying notes to unaudited financial statements.

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Agile Therapeutics, Inc.

Statements of Changes in Stockholders’ Equity

(Unaudited)

(in thousands, except share data)

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See accompanying notes to unaudited financial statements.

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Agile Therapeutics, Inc.

Statements of Changes in Stockholders' Equity

(Unaudited)

(in thousands, except share data)

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See accompanying notes to unaudited financial statements.

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Agile Therapeutics, Inc.

Statements of Cash Flows

(Unaudited)

(in thousands)

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See accompanying notes to unaudited financial statements.

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1. Organization and Description of Business

Nature of Operations

Agile Therapeutics, Inc. (“Agile” or the “Company”) was incorporated in Delaware on December 22, 1997. Agile is a women’s healthcare company dedicated to fulfilling the unmet health needs of today’s women. The Company’s activities since inception have consisted principally of raising capital and performing research and development, including development of the Company’s lead product candidate. The Company is headquartered in Princeton, New Jersey.

The Company’s sole approved product, Twirla®, also known as AG200 15, is a once weekly prescription contraceptive patch that received approval from the U.S. Food and Drug Administration, or FDA in February 2020. Substantially all of the Company’s resources are currently dedicated to commercializing Twirla in the United States. The Company has not generated product revenue to date and is subject to a number of risks similar to those of other early stage companies, including, but not limited to, dependence on key individuals, the difficulties and uncertainties inherent in the development of commercially usable products, market acceptance of products, protection of proprietary technology, the potential need to obtain additional capital necessary to fund the development of its products, competition from larger companies and compliance with the FDA and other government regulations. If the Company does not successfully commercialize any product candidates, it will be unable to generate recurring product revenue or achieve profitability. The Company has incurred operating losses and negative cash flows from operating activities each year since inception. As of September 30, 2020, the Company had an accumulated deficit of approximately $295 million.

The Company expects to continue to incur significant expenses and increased operating losses for the foreseeable future and that its operating expenses will increase substantially in connection with its ongoing activities, as the Company:

•maintains a sales and marketing infrastructure to commercialize Twirla in the United States;

•finalizes the validation process related to Corium’s manufacturing facility in preparation for commercial operations;

•continues to evaluate additional line extensions for Twirla and initiates development of potential product candidates in addition to Twirla;

•maintains, leverages and expands the Company’s intellectual property portfolio; and

•adds operational, financial and management information systems and personnel, including personnel to support the Company’s product development and future commercialization efforts.

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The Company has financed its operations to date primarily through the issuance and sale of its common stock in both public and private offerings (see Note 9), private placements of its convertible preferred stock, venture loans, and non-dilutive grant funding.

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Basis of Presentation

The accompanying unaudited interim financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted pursuant to such rules and regulations. These interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the SEC on February 20, 2020.

In the opinion of management, the unaudited interim financial statements reflect all adjustments, which are normal recurring adjustments, necessary for the fair presentation of the financial information for the interim periods presented. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period. Certain reclassifications have been made to prior periods to conform with current reporting. On the balance sheet, our right of use asset has been stated separately from other non-current assets.

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The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has incurred recurring losses and negative cash flows from operations. Based on the Company’s current business plan and ability to launch Twirla, the Company believes that its cash, cash equivalents and marketable securities as of September 30, 2020 will be sufficient to meet its projected operating requirements through the end of 2021. If the COVID-19 pandemic or other factors impact the Company’s current business plan or its ability to generate revenue from the launch of Twirla, the Company believes it has the ability to revise its commercial plans, including curtailing sales and marketing spending, to allow it to continue to fund its operations.

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2. Summary of Significant Accounting Policies

The Company’s complete listing of significant accounting policies is described in Note 2 to the Company’s audited financial statements as of December 31, 2019 included in its Annual Report on Form 10-K filed with the SEC.

Use of Estimates

The preparation of the Company’s 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. The Company bases its estimates and judgments on historical experience and various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s balance sheets and the amounts of expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for common stock warrants, stock-based compensation, income taxes, and accounting for research and development costs. Actual results could differ from those estimates.

Risks and Uncertainties

While Twirla has been approved by the FDA, other potential product candidates developed by the Company will require approval from the FDA prior to commercial sales. There can be no assurance that the Company’s other product candidates will receive the required approval. If the Company is denied approval or such approval is delayed, or the Company is unable to obtain the necessary financing to complete development and approval, there could be a material adverse impact on the Company’s financial condition and results of operations.

It should be noted that current public health threats could adversely affect the Company’s ongoing or planned business operations. In particular, the World Health Organization has declared the outbreak of a novel strain of coronavirus, now referred to as COVID-19, a pandemic resulting in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, and stay at home orders. The effect of these orders, government imposed quarantines and measures the Company has taken, such as implementing work-at-home policies, may negatively impact productivity, disrupt the Company’s business and could delay the Company’s commercialization timeline. The Company cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if the Company or any of the third parties with whom it engages, including personnel at third-party manufacturing facilities and other third parties with whom the Company conducts business, were to experience shutdowns or other business disruptions, the Company’s ability to conduct its business in the manner and on the timeline presently planned could be materially and adversely impacted. While it is unknown how long these conditions will last and what the complete effect will be on the Company, to date, the Company has been able to continue to execute on its plans according to the related timelines. The Company will continue to closely monitor events as they develop and evaluate alternative, mitigating measures it can implement if needed.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less when purchased to be cash equivalents. All cash and cash equivalents are held in United States financial institutions. Cash and cash equivalents include money market funds that invest primarily in commercial paper and U.S. government and U.S. government agency obligations.

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The Company maintains balances with financial institutions in excess of the Federal Deposit Insurance Corporation limit.

Marketable Securities

The Company invests a portion of its excess cash balances in marketable securities, including U.S. government agency securities, and highly rated corporate bonds. The Company classifies all of its marketable securities as current assets on the balance sheet because they are available-for-sale and available to fund current operations. Marketable securities are stated at fair value with unrealized gains and losses included as a component of accumulated other comprehensive income (loss), which is a separate component of stockholders' equity, until such gains and losses are realized. If a decline in the fair value is considered other-than-temporary, based on available evidence, the unrealized loss is reclassified from accumulated other comprehensive income (loss) to the statements of operations. Realized gains and losses are determined on the specific identification method and are included in other income.

Fair Value of Financial Instruments

In accordance with Accounting Standards Codification (“ASC”) 825, Financial Instruments, disclosures of fair value information about financial instruments are required, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Cash, cash equivalents, and marketable securities are carried at fair value (see Note 3).

Other financial instruments, including accounts payable and accrued liabilities, are carried at cost, which approximates fair value given their short-term nature.

Pre-Launch Validation Product

The Company’s third-party manufacturer, Corium, is undertaking the validation of our commercial manufacturing process for Twirla. The costs associated with validation are being expensed as research and development expenses during the period the costs are incurred. If validation testing is successful, the Company plans to utilize this validation product for commercial supplies and samples of Twirla. The Company does not plan to capitalize any validation product. After validation is complete, the Company will capitalize commercial supplies as inventory on subsequent production.

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Property and Equipment

Property and equipment, consisting of manufacturing, office and computer equipment, is stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Expenditures incurred after the fixed assets have been put into operation, such as repairs and maintenance, are charged to earnings in the period in which costs are incurred. Improvements and additions are capitalized in accordance with Company policy.

Long-Lived Assets

In accordance with ASC 360, Property, Plant and Equipment, the Company’s policy is to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management does not believe that there has been any impairment of the carrying value of any long-lived assets as of September 30, 2020.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses consist primarily of costs related to personnel, including salaries and other personnel-related expenses, expenses related to manufacturing, clinical trial expenses, consulting fees and support services used in drug development. All research and development costs are charged to operations as incurred in accordance with ASC 730, Research and Development.

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In certain circumstances, the Company is required to make advance payments to vendors for goods or services that will be received in the future for use in research and development activities. In such circumstances, the advance payments are deferred and are expensed when the activity has been performed or when the goods have been received.

Deferred Financing Costs

Costs directly attributable to the Company’s senior secured term loan (see Note 8) are deferred and reported as a reduction of the related term loan. These costs represent a 1% facility fee paid directly to the lender, legal fees and other costs related to the term loan and are being amortized over the term of the loan. Amortization of deferred financing costs charged to interest expense was approximately $69 and $162 for the three and nine months ended September 30, 2020.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to credit risk consist principally of cash, cash equivalents and marketable securities. The Company invests its cash, cash equivalents and marketable securities in debt instruments and interest-bearing accounts in United States financial institutions, the balances of which exceed federally insured limits. The Company has not recognized any losses from credit risks on such accounts. The Company mitigates credit risk by limiting the investment type and maturity to securities that preserve capital, maintain liquidity and have a high credit quality. The Company has no financial instruments with off balance sheet risk of accounting loss.

Warrants

The Company accounts for its warrants to purchase common stock in accordance with ASC 480, Distinguishing Liabilities from Equity. On January 1, 2019, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2017-11 Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception, which indicate that a down round feature no longer precludes equity classification when assessing whether an investment is indexed to an entity’s own stock. The Company used a modified retrospective approach to adoption, which does not restate its financial statements as of the prior year end (December 31, 2018). The cumulative effect of adoption of ASU 2017-11 resulted in an adjustment to accumulated deficit as of January 1, 2019 of $213 with a corresponding adjustment to additional paid-in capital.

The warrants issued in connection with the Company’s debt financing completed in February 2015 are classified as a component of stockholders’ equity. The value of such warrants was determined using the Black-Scholes option-pricing model. These warrants expired without being exercised on February 24, 2020.

In connection with entering into a senior secured term loan facility in February 2020, the Company issued warrants to purchase 1,400,000 shares of its common stock. These warrant instruments qualify for equity classification and have been allocated based upon the relative fair value of the base instrument and the warrant. See Note 8 for additional information.

Income Taxes

The Company accounts for deferred taxes using the asset and liability method as specified by ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and the tax basis of assets and liabilities, operating losses and tax credit carryforwards. Deferred income taxes are measured using the enacted tax rates and laws that are anticipated to be in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

The Company has adopted the authoritative guidance on accounting for and disclosure of uncertainty in tax positions which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The

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Company has no uncertain tax positions as of September 30, 2020 that qualify for either recognition or disclosure in the financial statements under this guidance.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. The Company grants stock options for a fixed number of shares to employees and non-employees with an exercise price equal to no less than the fair value of the shares at grant date. Compensation cost is recognized for all share-based payments granted and is based on the grant-date fair value estimated using the weighted-average assumption of the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company elects to account for forfeitures when they occur. The equity instrument is not considered to be issued until the instrument vests. As a result, compensation cost is recognized over the requisite service period with an offsetting credit to additional paid-in capital.

The Company also awards restricted stock units (“RSUs”) to employees and its board of directors. RSUs are generally subject to forfeiture if employment terminates prior to the completion of the vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, common stock warrants, unvested RSUs and stock options are considered to be potentially dilutive securities but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive, and therefore, basic and diluted net loss per share were the same for all periods presented.

The following table sets forth the outstanding potentially dilutive securities that have been excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2020 and 2019, respectively, because to do so would be anti-dilutive (in common equivalent shares):

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Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 was adopted by the Company on January 1, 2020 and has no current impact on the Company as we do not have any financial instruments covered by the topic.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This guidance simplifies the accounting for income taxes by, among other things, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws. The guidance is effective for the Company on January 1, 2021. The Company is currently evaluating the impact of adopting this standard and does not expect the guidance to have a material impact on its consolidated financial statements.

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Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying financial statements.

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3. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, describes the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

The following table sets forth the Company’s financial instruments measured at fair value by level within the fair value hierarchy as of September 30, 2020 and December 31, 2019.

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There were no transfers between Level 1, 2 or 3 during 2020 or 2019.

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4. Marketable Securities

The following is a summary of marketable securities, classified as available-for-sale:

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The Company holds investment-grade marketable securities. There were no continuous unrealized loss positions in excess of twelve months as of September 30, 2020. Marketable securities include $0.2 million of accrued interest income at September 30, 2020.

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5. Prepaid Expenses

Prepaid expenses consist of the following:

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6. Accrued Liabilities

Accrued liabilities consist of the following:

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7. Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The Company adopted ASU No. 2016-02 on January 1, 2019. The Company recorded a lease asset and lease liability of approximately $0.3 million on its balance sheet as of January 1, 2019, with no material impact on its statement of operations.

The Company has no finance leases and one operating lease for office space in Princeton, NJ. Operating lease expense was $48 and $145 for the three and nine months ended September 30, 2020.

Operating cash flows used for operating leases during the three and nine months ended September 30, 2020 were $48 and $138, respectively. As of September 30, 2020, the weighted-average remaining lease term was 0.17 years and the weighted average discount rate was 21.2%.

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Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows:

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8. Credit Agreement and Guaranty

On February 10, 2020 (the “Closing Date”), the Company entered into a Credit Agreement and Guaranty with Perceptive Credit Holdings III, LP, a related party (“Perceptive”), for a senior secured term loan credit facility of up to $35.0 million, (the “Perceptive Credit Agreement”). A first tranche of $5.0 million was funded on execution of the Perceptive Credit Agreement. A second tranche of $15.0 million was funded as a result of the approval of Twirla by the FDA. Another $15.0 million tranche will be available to the Company based on the achievement of certain revenue milestones.

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The facility will mature on February 10, 2024 (“Maturity Date”). The Company is scheduled to make interest-only payments on the loans under the Perceptive Credit Agreement until February 10, 2023. Thereafter, the Company is required to make monthly principal payments in an amount equal to 1.50% of the principal amount of the outstanding loans until February 10, 2024.

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Borrowings under the Perceptive Credit Agreement will accrue interest at an annual rate equal to the London Interbank Offered Rate for one-month deposits (“LIBOR”) plus 10.25%, provided that LIBOR shall not be less than 1.5%. The rate of interest in effect as of the Closing Date and at September 30, 2020 was 11.75%. Upon the occurrence and during the continuance of any event of default under the Perceptive Credit Agreement, the interest rate automatically increases by 3.0% per annum.

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The Company may prepay any outstanding loans in whole or in part. Any such prepayment of the loans is subject to a prepayment fee of 10.0% if such prepayment occurs on or prior to February 10, 2021; 8.0% if such prepayment occurs after February 10, 2021 and on or prior to February 10, 2022; 4.0% if such prepayment occurs after February 10, 2022 and on or prior to February 10, 2023; and 2.0% if such prepayment occurs after February 10, 2023 and prior to February 10, 2024.

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All of the Company’s obligations under the Perceptive Credit Agreement are secured by a first-priority lien and security interest in substantially all of the Company’s tangible and intangible assets, including intellectual property.

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The Perceptive Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customary for similar financings. The negative covenants restrict or limit the ability of the Company to, among other things and subject to certain exceptions contained in the Perceptive Credit Agreement, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes, such as mergers or acquisitions, or changes to the Company’s business activities; make certain investments or restricted payments (each as defined in the Perceptive Credit Agreement); change its fiscal year; pay dividends; repay other certain indebtedness; engage in certain affiliate transactions; or enter into, amend or terminate any other agreements that have the impact of restricting the Company’s ability to make loan repayments under the Perceptive Credit Agreement. In addition, the Company must (i) at all times prior to the Maturity Date maintain a minimum cash balance of $3.0 million; and (ii) as of the last day of each fiscal quarter commencing with the fiscal quarter ending March 31, 2021, report revenues for the trailing 12-month period that exceed the amounts set forth in the Perceptive Credit Agreement, which range from $3.8 million for the fiscal quarter ending March 31, 2021 to $93.5 million for the fiscal quarter ending December 31, 2023. At September 30, 2020, the Company was in compliance with all of the covenants contained in the Perceptive Credit Agreement.

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In connection with the Perceptive Credit Agreement, the Company issued to Perceptive two warrants to purchase an aggregate of 1,400,000 shares of the Company’s common stock (together, the “Perceptive Warrants”). The first warrant is exercisable for 700,000 shares of common stock at an exercise price of $3.74 per share. The second warrant is exercisable for 700,000 shares of common stock at an exercise price of $4.67 per share. The Perceptive Warrants contain anti-dilution provisions and other warrant holder protections. The Perceptive Warrants are not exercisable to the extent that Perceptive would beneficially own more than 19.99% of the Company’s common stock as a result of the exercise. The Perceptive Warrants expire on February 10, 2027.

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The Company allocated the proceeds of $20.0 million in accordance with ASC 470 based on the relative fair values of the debt and warrants. The relative fair value of the warrants of approximately $3.6 million at the time of issuance, which was determined using the Black-Scholes option-pricing model, was recorded as additional paid-in capital and reduced the carrying value of the debt. The significant assumptions used in preparing the option pricing model for valuing the Company’s warrants issued to Perceptive include (i) volatility (70.0%), (ii) risk free interest rate of 1.47% (estimated using treasury bonds with a 3-year life), (iii) strike prices of $3.74 and $4.67 for the common stock warrants, (iv) fair value of common stock ($4.01) and (v) expected life (7 years). The fair value of the warrants as well as the debt issue costs incurred in connection with the entry into the Perceptive Credit Agreement, including a facility fee of 1% of the total amount of loans available under the facility, are presented as a direct deduction from the carrying amount of the term loan on the consolidated balance sheet as detailed below.

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The fair value of the warrants and the debt issue costs are being amortized utilizing the effective interest method over the term of the loan. The Company recorded interest expense for the amortization of the fair value of the warrants and debt issue costs of $303 and $707 for the three and nine months ended September 30, 2020.

9. Stockholders’ Equity

Shelf Registration Statement

On October 2, 2020, the Company filed a universal shelf registration statement with the SEC for the issuance of common stock, preferred stock, warrants, rights, debt securities and units up to an aggregate amount of $200.0 million (the “2020 Shelf Registration Statement”). On October 14, 2020, the 2020 Shelf Registration Statement was declared effective by the SEC. In the future, the Company may periodically offer one or more of these securities in amounts, prices and terms to be announced when and if the securities are offered. At the time any of the securities covered by the 2020 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of any such offering.

Public Offerings

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In February 2020, the Company completed a public offering of 17,250,000 shares of its common stock at a price of $3.00 per share. Proceeds from the public offering, net of underwriting discounts, commissions and offering expenses were approximately $48.4 million.

In August 2019, the Company completed a public offering of 14,526,315 shares of its common stock at a price of $0.95 per share. Proceeds from the public offering, net of underwriting discounts, commissions and offering expenses were approximately $12.7 million.

Private Placement

In March 2019, the Company completed a private placement of 8,426,750 shares of common stock at $0.93 per share.  Proceeds from the Company’s private placement, net of offering costs were approximately $7.8 million.

ATM Sales Agreements

In January 2019, the Company entered into a common stock sales agreement (the “Sales Agreement”) under which the Company may sell up to an aggregate of $10.0 million in gross proceeds through the sale of shares of common stock from time to time in “at-the-market” equity offerings (as defined in Rule 415 promulgated under the Securities Act of 1933, as amended).  The Company agreed to pay a commission of 3% of the gross proceeds of any common stock sold under the Sales Agreement.  During the three months ended September 30, 2019, the Company issued and sold 143,482 shares of common stock under the Sales Agreement resulting in net proceeds to the Company of approximately $0.2 million.  During the nine months ended September 30, 2019, the Company issued

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and sold 1,801,528 shares of common stock under the Sales Agreement resulting in net proceeds to the Company of approximately $2.5 million. The Company terminated the Sales Agreement on July 31, 2019.

In November 2019, the Company entered into a second common stock sales agreement (the “Second Sales Agreement”) under which the Company was authorized to issue and sell shares of common stock having aggregate sales proceeds of up to $20.0 million from time to time. The Company agreed to pay a commission of 3% of the gross proceeds from the sales of common stock under the Second Sales Agreement. In the year ended December 31, 2019, the Company issued and sold 10,440,908 shares of common stock under the Second Sales Agreement, representing all of the capacity of the Second Sales Agreement, resulting in net proceeds of approximately $19.3 million.

Stock-Based Compensation Expense

Stock-based compensation expense was allocated as follows:

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10. Accumulated Other Comprehensive Income

The change in accumulated other comprehensive income, which is reported as a component of stockholders’ equity, for the nine months ended September 30, 2020 is summarized below:

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No amounts were classified out of accumulated other comprehensive income during the nine months ended September 30, 2020.

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11. Income Taxes

On March 27, 2020, the US government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which includes numerous modifications to income tax provisions, including a limitation on business interest expense and net operating loss provisions and the acceleration of alternative minimum tax credits. Given the Company’s history of losses, the CARES Act is not expected to have a material impact on its income tax provision.

12. 2019 Retention Plan

In July 2019, the Company adopted a retention plan (the “2019 Retention Plan”) for all employees (with the exception of the Chairman and Chief Executive Officer) in order to induce such employees to remain employed by the Company through at least the extended PDUFA goal date of February 14, 2020.

Each employee who participated in the 2019 Retention Plan and remained continuously employed by the Company through the approval of Twirla was to be paid a lump-sum cash payment in an amount determined for each eligible employee by the Compensation Committee at the time of the adoption of the 2019 Retention Plan. If an eligible employee terminated employment prior to the approval for any reason, no such retention payment was payable to the eligible employee. With the approval of Twirla in February, the cash portion of the 2019 Retention Plan in the amount of approximately $0.3 million was expensed and paid to eligible employees in February 2020.

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All employees (with the exception of the Chairman and Chief Executive Officer) who were employed by the Company as of July 3, 2019 were also granted a stock option to purchase the number of shares of common stock as approved by the Compensation Committee, with a per share exercise price of $1.48, representing the closing price of the Company’s common stock as reported by Nasdaq on the date of grant. For each option, 50% of the option vested on July 3, 2020 and the remaining 50% will vest on December 31, 2020.

In addition, the vesting schedule for the stock options granted in January 2019 was amended for all employees (with the exception of the Chairman and Chief Executive Officer) holding such options who were employed on July 3, 2019 as follows: 50% of the option vested on January 29, 2020, 25% vested on June 30, 2020 and the remaining 25% will vest on December 31, 2020.

13. Commitments and Contingencies

The Company has several firm purchase commitments, primarily related to the manufacture and supply of Twirla and the supply of a field force of sales representatives to provide certain detailing services, sales operation services, compliance services, and training services. Future firm purchase commitments under these agreements, the last of which ends in 2030, total $17.8 million. This amount does not represent all of the Company’s anticipated purchases in the future, but instead represents only purchases that are the subject of contractually obligated minimum purchases. The minimum commitments disclosed are determined based on non-cancelable minimum spend into 2021 or termination amounts. Additionally, the Company purchases products and services as needed with no firm commitment.

The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position. As of September 30, 2020, the Company has not recorded a provision for any contingent losses.

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

The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2020.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K, as may be updated by our Quarterly Reports on Form 10-Q and the other reports we file from time to time with the SEC, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Dollars in the text and in tabular format are presented in thousands, except per share data, or as otherwise indicated.

Overview

We are a women’s healthcare company dedicated to fulfilling the unmet health needs of today’s women. Twirla^® and our potential product candidates are designed to provide women with contraceptive options that offer greater convenience and facilitate compliance. Twirla, our first and only approved product, is a once-weekly prescription combination hormonal contraceptive patch. Twirla is designed using our proprietary transdermal patch technology, called Skinfusion^®, designed with properties to optimize patch adhesion and patient wearability, which may help support compliance while, for the first time, delivering a dose of estrogen consistent with commonly prescribed combined hormonal contraceptives, or CHCs. We believe there is an unmet market need for a contraceptive patch that is designed to deliver approximately 30 mcg of estrogen and 120 mcg of progestin in a convenient dosage form that may support compliance in a non-invasive fashion.

Twirla was approved for sale in the United States on February 14, 2020 as a method of contraception for use in women of reproductive potential with a BMI < 30 kg/m² for whom a combined hormonal contraceptive is appropriate. Based on the observed relationship between efficacy and BMI in a Phase 3 clinical trial, Twirla’s limitation of use instructs healthcare providers to consider Twirla’s reduced effectiveness in women with a BMI ≥

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25 to <30 kg/m² before prescribing. Twirla is contraindicated in women with a BMI ≥ 30 kg/m² because compared to women with a lower BMI, women in this group had reduced effectiveness and may have a higher risk for VTEs.

As part of Twirla’s approval, the FDA is requiring us to conduct a long-term prospective, observational post-marketing study comparing the risks for VTE and ATE in new users of Twirla to new users of other CHCs, which we refer to as the PMR. The FDA’s requirement for Twirla is similar to another post-marketing study requirement for a recently approved CHC. The final study report for the Twirla PMR is scheduled to be submitted to the FDA in November 2032, with interim safety data reporting to the FDA due in November 2026. We have also agreed to a small post-marketing commitment, or PMC, study to assess the residual drug content of Twirla after use. The PMC study is similar to residual drug studies requested of patch developers in the FDA’s November 2019 draft guidance entitled “Transdermal and Topical Delivery Systems—Product Development and Quality Considerations.” We are evaluating the design and cost of these post-marketing studies.

With the approval of Twirla we are now focused on our transition from a clinical development stage company to a commercial company. We plan to continue the implementation of our commercialization plan for Twirla and to manage the growth of our company. Our near-term plan for the commercialization of Twirla includes:

Our short-term goal is to establish an initial franchise in the multi-billion-dollar U.S. hormonal contraceptive market built on the approval of Twirla in the U.S. Our resources are currently focused on the commercialization of Twirla. To that end, we completed the pre-validation process and began our validation of the commercial manufacturing process in the first half of 2020. We are currently undergoing the validation of the commercial manufacturing process for Twirla in accordance with our approved marketing application. We intend to ship product to wholesalers in the fourth quarter of 2020. At the same time, we continue to prepare for the availability of commercial product supply. In August 2020, we hired a Chief Medical Officer, who is leading an evaluation of our existing pipeline including potential development costs and timelines. We also expect to explore possible expansion through business development activities.

In the first quarter of 2020, we began the pre-validation work on our commercial manufacturing process for Twirla, and entered into an agreement with our third-party logistics provider for Twirla distribution services.

In the second quarter of 2020, we continued to execute on our plan to engage with third party payors to gain coverage and reimbursement for Twirla, completed production of the planned manufacturing pre-validation batch of Twirla and began the validation process. On April 30, 2020, we entered into a definitive agreement with our contract manufacturer, Corium, for the commercial manufacture and supply of Twirla. In addition, on April 30, 2020, we entered into an agreement with inVentiv Commercial Services, a Syneos Health group company, or inVentiv, to provide a contract sales force and related sales services for Twirla.

In the third quarter of 2020, we hired and trained an initial sales team of 73 persons and they have commenced detailing Twirla to health care providers through both live and virtual meetings. In August 2020, we hired a Chief Medical Officer who, among other things, is leading our pipeline development efforts, post-marketing clinical trial program, and medical support for our commercial team. Additionally, we continued work on the validation of our commercial manufacturing process for Twirla.

A summary of our current priorities is as follows:

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It should be noted that current public health threats could adversely affect our ongoing or planned business operations. In particular, the World Health Organization has declared the outbreak of a novel strain of coronavirus, now referred to as COVID-19, a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, and stay at home orders. The effect of these orders, government imposed quarantines and measures we have taken, such as implementing work-at-home policies, may negatively impact productivity, disrupt our business and could delay our commercialization timeline. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including personnel at third-party manufacturing facilities and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timeline presently planned could be materially and adversely impacted. While it is unknown how long these conditions will last and what the complete effect will be on the Company, to date, we have been able to continue to execute our plans according to the related timelines. We will continue to closely monitor events as they develop and evaluate alternative, mitigating measures we can implement if needed.

Financial Overview

Since our inception in 1997, we have devoted substantial resources to developing and seeking regulatory approval for Twirla, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. We incurred research and development expenses of $9.9 million, $9.8 million and $14.4 million during the years ended December 31, 2019, 2018 and 2017, respectively.  We incurred research and development expenses of $3.7 million and $2.4 million for the three months ended September 30, 2020 and 2019, respectively.  We incurred research and development expenses of $10.5 million and $7.0 million for the nine months ended September 30, 2020 and 2019, respectively. While we anticipate that a portion of our operating expenses will continue to be related to research and development as we plan our PMR and evaluate the development of our pipeline, we expect our operating expenses to substantially shift towards commercialization. A substantial amount of our current resources have been dedicated to completing manufacturing validation and commercializing Twirla.

Moving forward, we plan to monitor our spending closely. We expect operating expenses for the full year 2020 to be in the range of $52.0 million to $54.0 million, with general and administrative expenses accounting for approximately 70% of the spending as we build out our commercial infrastructure. Included in operating expense is $2.7 million to $3.0 million of non-cash stock compensation expense. We expect gross revenue in the fourth quarter of 2020, reflecting expectations of initial stocking of Twirla by wholesalers, to be approximately $1.0 million. Based on our current business plan and our ability to launch Twirla, we believe that our cash, cash equivalents and marketable securities as of September 30, 2020, will be sufficient to meet our projected operating requirements through the end of 2021. If the COVID-19 pandemic or other factors impact our current business plan or our ability to generate revenue from the launch of Twirla, we believe we have the ability to revise our commercial plans, including curtailing sales and marketing spending, to allow us to continue to fund our operations.

We have funded our operations primarily through sales of common stock, convertible preferred stock, convertible promissory notes and term loans.  As of September 30, 2020 and December 31, 2019, we had $71.9 million and $34.5 million in cash, cash equivalents and marketable securities, respectively.

In January 2019, we entered into a common stock sales agreement, or the 2019 ATM Agreement, under which we were authorized to sell up to an aggregate of $10.0 million in gross proceeds through the sale of shares of common stock from time to time in “at-the-market” equity offerings (as defined in Rule 415 promulgated under the

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Securities Act of 1933, as amended). We agreed to pay a commission of 3% of the gross proceeds of any common stock sold under this agreement. During the year ended December 31, 2019, we issued and sold a total of 1,801,528 shares of common stock under the 2019 ATM Agreement resulting in net proceeds of approximately $2.5 million. We terminated the 2019 ATM Agreement on July 31, 2019.

In March 2019, we completed a private placement of 8,426,750 shares of common stock at $0.93 per share. Proceeds from the private placement, net of offering costs, were approximately $7.8 million.

In August 2019, we completed a public offering of 14,526,315 shares of common stock at a price of $0.95 per share. Proceeds from the public offering, net of underwriting discounts, commissions and offering expenses were approximately $12.7 million.

In November 2019, we entered into a second ATM Agreement, or the Second 2019 ATM Agreement, under which we were authorized to issue and sell shares of our common stock having aggregate sales proceeds of up to $20.0 million from time to time. We agreed to pay a commission of 3% of the gross proceeds from the sales of our common stock under the Second 2019 ATM Agreement. In the year ended December 31, 2019, we issued and sold 10,440,908 shares of common stock under the Second 2019 ATM Agreement, representing all of the capacity of the Second 2019 ATM Agreement, resulting in net proceeds of approximately $19.3 million.

In February 2020, we entered into a Credit Agreement and Guaranty with Perceptive Credit Holdings III, LP, or Perceptive, for a senior secured term loan facility of up to $35 million, which we refer to as the Perceptive Credit Agreement. A first tranche of $5 million was funded on execution of the Perceptive Credit Agreement. A second tranche of $15 million was funded as a result of the approval of Twirla by the FDA. Another $15 million tranche will be available upon the achievement of certain revenue milestones. The facility will be interest only until the third anniversary of the closing date.

In February 2020, we completed a public offering of 17,250,000 shares of our common stock at a price of $3.00 per share. Proceeds from the public offering, net of underwriting discounts, commissions and offering expenses were approximately $48.4 million.

We have not generated any revenue and have never been profitable for any year. Our net loss was $18.6 million, $19.8 million and $28.3 million for the years ended December 31, 2019, 2018 and 2017, respectively. Our net loss was $15.5 million and $4.4 million for the three months ended September 30, 2020 and 2019, respectively. Our net loss was $34.2 million and $12.6 million for the nine months ended September 30, 2020 and 2019, respectively. We expect to incur increased expenses and increasing operating losses for the foreseeable future as we commercialize Twirla. This includes completing the qualification and validation of our commercial manufacturing process, initiating pre-launch commercial activities, commercially launching Twirla, advancing our other potential product candidates and expanding our research and development programs.

We do not own any manufacturing facilities and rely on our contract manufacturer, Corium, for all aspects of the manufacturing of Twirla. We will need to continue to invest in the manufacturing process for Twirla, and incur significant expenses, in order to complete the validation of Corium’s commercial manufacturing line for Twirla and be capable of supplying projected commercial quantities of Twirla. We expect to incur significant expenses in order to create an infrastructure to support the commercialization of Twirla, including sales, marketing, distribution, medical affairs and compliance functions.

Financial Operations Overview

Revenue

To date, we have not generated any revenue. In the future, we may generate revenue from product sales, license fees, milestone payments and royalties from the sale of products developed using our intellectual property. Our ability to generate revenue and become profitable depends on our ability to successfully commercialize Twirla and any product candidates that we may advance in the future. If we fail to complete the development of Twirla or any other potential product candidates we advance in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.

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Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities. Research and development expenses consist primarily of costs incurred for the development of Twirla and other current and future potential product candidates, and include:

Research and development costs are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to us by our third-party vendors.

Research and development activities are central to our business model and to date, our research and development expenses have related primarily to the development of Twirla. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis, as the majority of our past and planned expenses have been and will be in support of Twirla.

For the three months ended September 30, 2020 and 2019, our research and development expenses were approximately $3.7 million and $2.4 million, respectively.  For the nine months ended September 30, 2020 and 2019, our research and development expenses were approximately $10.5 million and $7.0 million, respectively. The following table summarizes our research and development expenses by functional area.

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It is difficult to determine with any certainty the exact duration and completion costs of any of our future clinical trials of Twirla or our other current and future potential product candidates we may advance. It is also difficult to determine if, when or to what extent we will generate revenue from the commercialization and sale of Twirla or our product candidates that obtain regulatory approval.

The duration, costs and timing of clinical trials and development of our other potential product candidates in addition to conducting required post-marketing studies for Twirla will depend on a variety of factors, including the uncertainties of future clinical trials and preclinical studies, the rate of subject enrollment, obtaining additional capital, and significant and changing government regulation. For the foreseeable future, we expect the current public health crisis to have an effect on the conduct of clinical trials. In addition, the probability of success for the development of any of our product candidates will depend on numerous factors, including competition, manufacturing capability and commercial viability. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to require

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us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, or experience issues with our manufacturing capabilities, we could be required to expend significant additional financial resources and time with respect to the development of that product candidate. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential. Substantially all of our resources are currently dedicated to commercializing Twirla.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance and administrative functions including payroll taxes and health insurance, stock-based compensation and travel expenses. Other general and administrative expenses include facility-related costs, insurance and professional fees for legal, patent review, consulting and accounting services. General and administrative expenses are expensed as incurred.

For the three months ended September 30, 2020 and 2019, our general and administrative expenses totaled approximately $11.0 million and $2.1 million, respectively. For the nine months ended September 30, 2020 and 2019, our general and administrative expenses totaled approximately $21.8 million and $5.7 million, respectively. With the recent approval of Twirla, we intend to commercialize Twirla in the United States through a contract sales force. We anticipate that our general and administrative expenses will increase in the future with the commercialization of Twirla. These increases will likely include increased selling and marketing costs, including payroll and operating costs, related to the commercial launch of Twirla, legal and accounting services, stock registration and printing fees, addition of new personnel to support compliance and communication needs, increased insurance premiums, outside consultants and investor relations.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosures. On an ongoing basis, our actual results may differ significantly from our estimates.

There have been no material changes to our critical accounting policies and estimates from the information discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K.

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Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019