We are a late clinical-stage specialty pharmaceutical company focused on developing and commercializing our proprietary, innovative and differentiated topical drug candidates for dermatological therapy. Our lead product candidate, FMX101 (4% minocycline foamfoam), is being developed for the treatment of acne, rosacea and other skin conditions. Our lead product candidates, FMX101 (4% minocycline foam) for moderate-to-severe acne and our second product candidate, FMX103 (1.5% minocycline foam), is being developed for the treatment of moderate-to-severe papulopustular rosacea,rosacea. Both product candidates are novel topical foam formulations of the antibiotic minocycline. Based onminocycline and were developed using our Molecule Stabilizing Technology, a proprietary foam platform designed to optimize the topical delivery of minocycline, an active pharmaceutical ingredient, or API, that is currently available only in oral form despite its prevalent use in dermatology.

We announced positive top-line results demonstrated infrom both of our Phase II and Phase III clinical trials for each of FMX101 and FMX103 in the second half of 2018. We submitted our Phase II clinical trialnew drug application, or NDA, to the FDA, for FMX101 in December 2018, and expect to submit an NDA for FMX103 in mid-2019. In March 2019, we announced that the FDA accepted our NDA for FMX101 for review, with a targeted Prescription Drug User Fee Act, or PDUFA, action date of October 20, 2019. We cannot provide any assurances or predict with any certainty the schedule for which we will, if at all, receive approval from the FDA with respect to FMX101 or FMX103. See “–Key Developments” below. Despite the considerable U.S. market opportunities for acne and rosacea, we believe these product candidates have the potential to provide a fast, effective and well-tolerated treatment for their respective indications, whichmarkets are currently underserved and commonly treated by oral prescription products such as oral minocycline oraland doxycycline and various other non-foamnon-minocycline topical therapies. If approved, we believe FMX101 and FMX103 have the potential to provide first-in-class topical treatments for millions of people who suffer from their respective indications.

Our corporate strategy is to develop and solidify a commercial presence in acne and rosacea by obtaining FDA approval for, and launching our lead product candidates, FMX101 and FMX103, in the United States. We may also enter into partnerships with third parties to reach other geographic territories or therapeutic fields through their respective sales forces and infrastructure. Following these near-term goals, we intend to grow beyond these indications into other dermatological indications, and to diversify our product and commercial development beyond minocycline and the tetracycline class of antibiotics. We are currently investingdeveloping additional foam and other topical products for acne, rosacea and other dermatology indications in vehicle platforms designed to enhance delivery of their respective APIs. We are also evaluating diversifying into synergistic technologies and specialties either on our own or through partnerships.

FMX101 is a product candidate containing micronized minocycline hydrochloride, an antibiotic in the majoritytetracycline class, in a 4% concentration for the treatment of moderate-to-severe acne vulgaris. The active pharmaceutical ingredient is suspended in our efforts and resources to advanceMolecule Stabilizing Technology foam vehicle, an elegant, light-feeling topical foam that is easily spread across wide areas of the skin. In September 2018, we announced our third pivotal Phase III clinical trial of FMX101 (Study 22) for FMX101FX2017-22) met both of its co-primary endpoints, demonstrating a statistically significant reduction in the U.S. We announcednumber of inflammatory lesions and a statistically significant improvement in patients’ Investigator’s Global Assessment, or IGA, scores, a metric commonly used to measure efficacy in acne trials. These positive results followed the first patient enrolled in this trial on August 3, 2017. We expect to have top-line results from this trial in the third quarter of 2018. In March of 2017, we announced the results of the double-blind stage of our initial two initial Phase III clinical trials. Statistical significance was demonstratedtrials of FMX101 that we announced in 2017, where both co-primary efficacy endpoints were met in one studytrial (Study 05), however, statistical significance was demonstrated in onlyFX2014-05) and one of the two co-primary efficacy endpoints showed statistical significance in the second studyother trial (Study 04)FX2014-04). Statistical significance was also demonstrated for FMX101 compared to vehicle in the pooled analysis of the co-primary endpoints as well as key secondary endpoints. TheWe embarked on our third Phase III trial was initiated(Study FX2017-22) following a Type B meeting conducted with the FDA in June of 2017. During this meeting, wewhich the FDA confirmed that achieving statistically significantreplicating the results for FMX101 versus vehicle in both co-primary efficacy endpoints in a third independent clinical trialof Study FX2014-05 would be sufficient for establishinglikely support an efficacy claim. On May 7,claim for FMX101. In addition to the positive Study FX2017-22 efficacy results, very few safety adverse events (and no treatment-related serious adverse events) were observed both in Study FX2017-22 and in the 40-week open label safety portion of Studies FX2014-04 and FX20410-05 that we concluded in January 2018.

FMX103 is a product candidate also containing micronized minocycline hydrochloride suspended in our Molecule Stabilizing Technology vehicle, at a lower 1.5% concentration, for the treatment of moderate-to-severe papulopustular rosacea. In November 2018, we announced the enrollmentthat both of the last patient in our third pivotal Phase III clinical trial for FMX101 (Study 22) in the U.S. A previous Phase II clinical trial of FMX101 also demonstrated clinically and statistically significant results in all primary and secondary endpoints. As described in more detail below, in January 2018 we announced the completion of a long-term safety study that was an extension of our two initial Phase III clinical trials for FMX101. The resultsFMX103 (Studies FX2016-11 and FX2016-12) met each of their co-primary endpoints, demonstrating a statistically significant reduction in inflammatory lesion counts and IGA treatment success of approximately 50% from the study showed FMX101 to be well-toleratedbaseline. There were no treatment-related serious adverse events, very few reported adverse events and to have an acceptable safety profile.

In addition,We developed FMX101 and FMX103 using our proprietary Molecule Stabilizing Technology foam-based technology platform that was optimized for delivery of minocycline hydrochloride, a characteristically unstable small molecule, through the skin. We are currently developing in-house a pipeline of other innovative products to enhance our minocycline platform, including FCD105, a product candidate for the treatment of acne vulgaris that combines minocycline with a retinoid and which we successfully completedanticipate evaluating in a Phase II clinical trial with FDX104, our proprietary doxycycline foam for the management of moderate-to-severe rash associated with epidermal growth factor receptor inhibitor (EGFRI) anticancer treatments. As the majority of our efforts and resources have been devoted to the development of FMX101 and FMX103 over the past several months, limited work has been done during this period to further the development of FDX104.(Study FX2016-40) beginning in mid-2019. We are also currently assessingreviewing potential acquisitions of pipeline products at various stages of development that could be incorporated into our various options with regard to this product candidate. We have also successfully completed a Phase II clinical trial of FMX102, our minocycline foamvehicle for the treatment of impetigo, including impetigo caused by methicillin-resistant staphylococcus aureus, or MRSA. However, as described in previous reports,optimized delivery.

In addition, we have been assessing the clinical and commercial viabilityother proprietary delivery technologies in development that enable topical delivery of this product candidate for some time, and following additional analysis of its market potential we have recently decided to discontinue further development of this product.

BesidesIn addition to our in-house development projects, we have entered into development and license agreements relating to our technology with various pharmaceutical companies, such as Bayer HealthCare AG, Mylan N.V. and Actavis Laboratories. Our total revenues from these development andmost notably with LEO Pharma A/S, or LEO, who assumed a license agreements, since our inception through June 30, 2018, amounted to approximately $30.0 million. The collaborationagreement we initially entered into with Bayer HealthCare AG, or Bayer.  In 2015, Bayer in particular, has led to the development and commercialization ofreceived FDA approval for Finacea^® Foam (azelaic acid 15%)(15% azelaic acid), or Finacea, a prescription foam product for the treatment of rosacea, which uses one of ourutilizes an emulsion-based proprietary foam technology platforms.platform that we licensed to them that is different from our surfactant-free foam platform that supports our lead product candidates. Bayer began selling Finacea in the U.S.United States in the third quarter of 2015, and since its commercial launch through June 30,in September 2018, LEO acquired Finacea from Bayer and assumed all rights and responsibilities under our initial license agreement with Bayer. Together with LEO, we received (or became entitled to receive) a total of $8.5 million in royalties for this product. As further discussed below, we received notifications from third partyare litigating against several generic pharmaceutical companies that they had filedfor alleged infringement of certain of our patents following the generic companies’ submission of abbreviated new drug applications with the FDA, seeking approval forto manufacture and sell generic versions of Finacea prior to the expiry of certain patents licensed by Foamix to Bayer. In JanuaryFinacea. We recently settled our litigation against Perrigo FINCO UK Limited Partnership, or Perrigo, but our litigation against two other companies, Teva Pharmaceuticals USA, Inc. and February of this year weTaro Pharmaceutical Industries, Ltd. and Bayer initiated legal action against such third parties. We are committed to defending our intellectual property rights globally, including patents we have licensed to other pharmaceutical companies as part of our collaboration efforts. Our FMX101 and FMX103 products are based on a different foam technology platform and different patents than those listed in the Orange Book for Finacea.its affiliates, remains ongoing.

We do not expecthave also out-licensed other foam technology platforms to generate revenue from product sales unless and until we successfully complete clinical trials and obtain marketing approval fromother third parties to develop branded pharmaceutical products containing different APIs for potential commercialization that are in the FDA for one or moreearly stages of our lead product candidates, FMX101 or FMX103. Accordingly, we anticipate that we will need to raise additional capital in order to complete the development and commercialization of FMX101 and FMX103 and to advance the development of our other product candidates. Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through a combination of public and private equity offerings, debt or other structured financings, and strategic collaborations. We may be unable to raise capital when needed or on attractive terms, which would force us to delay, limit, reduce or terminate our development programs or commercialization efforts. We will need to generate significant revenue to achieve and sustain profitability, and we may never be able to do so.development.

We continue to be an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933 and as modified by the JOBS Act. As such, we are eligible to, and take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies,” such as not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We will remain an emerging growth company until the earliest of: (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0$1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering;offering, specifically, December 31, 2019; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.Act with at least $700 million of equity securities held by non-affiliates.

Below is a summary of selected key developments affecting our business that have occurred since December 31, 2017:2018:

There was no cost of revenues for the sixthree months ended March 31, 2019 and three month periods ended June 30, 2018, and 2017, as revenues consist almost entirely fromof royalties, which do not bear related cost of revenue.

We do not expect substantial changes in cost of revenue unless and until we obtain regulatory approval for our lead product candidates and begin serial production of such products, whether internally or through third party manufacturers, at which point we expect our cost of revenues to grow along with the growth of our sales and inventory needs.

Research and development activities are, and will continue to be, central to our business. 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 expect to incur significant research and development costs to increase significantly forin the foreseeable future assuming our pipeline products progress into clinical trials. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to reach commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will affect our clinical development programs and plans.

The successful development of FMX101, FMX103 and additionalour product candidates is highly uncertain. While we have a filed an NDA for FMX101 and expect to file one for FMX103, we cannot provide any assurances or predict with any certainty the schedule on which we will, if at all, receive approval from the FDA with respect to either of FMX101 and FMX103. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our technology for additional indications. This uncertainty is due to numerous risks and variables associated with developing products, including the uncertainty of:

A change in the outcome of any of these variables with respect to the development of FMX101, FMX103 or our other product candidates could result in a significant change in the costs and timing associated with their development. For example, if the FDA or foreign regulatory authority were to require us to conduct preclinical studies and clinical trials beyond those which we currently anticipate for the completion of clinical development of our product candidates, or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional time and financial resources on the completion of the clinical development.

Research and development expenses consist primarily of:

Our selling, general and administrative expenses consist principally of:

As part of our growth strategy, we have begun building up our dedicated U.S. marketing and business development team and infrastructure, and we intend to further increase such U.S. infrastructure, as well as expand our marketing effort to new markets. We therefore expect selling and marketing expenses to increase in absolute terms as a percentage of our revenues. Our total selling, general and administrative expenses for the three-month periodsthree months ended June 30,March 31, 2019 and 2018 and 2017 were approximately $2.9 million$5.3 and $3.5 million, respectively, and for the six-month periods ended June 30, 2018 and 2017 were approximately $6.7 million and $6.3$3.8 million, respectively.

Financial income consists primarily of gains from interest earned from our bank deposits and financial income on our marketable securities.

We have yet to generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward tax losses totaling approximately $88.6$146.7 million as of December 31, 2017.2018. During 2018, we incurred a carry forward tax loss in our U.S. subsidiary, Foamix Pharmaceuticals Inc., of $0.4 million. We anticipate that we will be able to carry forward these tax losses to future tax years. Accordingly, we do not expect to pay taxes in Israelthe applicable jurisdiction until we have taxable income after the full utilization of our carry-forward tax losses.losses in that jurisdiction. We provided a full valuation allowance with respect to the deferred tax assets related to these carry-forward losses.

There was no cost of revenues for the three-month periods ended June 30,March 31, 2019 and 2018, and 2017, as revenues consist almost entirely fromof royalties, which bear no related cost of revenue.

Our general and administrative expenses for the three months ended June 30, 2018March 31, 2019 were $2.9$5.3 million, representing a decreasean increase of $542,000,$1.5 million, or 15.5%39.4%, compared to $3.5$3.8 million for the three months ended June 30, 2017.March 31, 2018. The decreaseincrease in selling, general and administrative expenses resulted primarily from a decrease of $1.2 million in compensation to one of the company’s co-founders in the second quarter of 2017, off-set by an increase of $280,000$1.4 million in payrollexpenses mostly relating to pre-commercialization activities and other payroll-related expenses including share-based compensation mostly due to an increase in headcount and salary raises, an increase of $360,000 in advisory and professional fees and an increase of $150,000 in rent, maintenance and office expenses.market research.

 

As a result of the foregoing, our operating loss for the three months ended June 30, 2018March 31, 2019 was $18.8$15.9 million, compared to an operating loss of $16.6$25.7 million for the three months ended June 30, 2017, an increaseMarch 31, 2018, a decrease of $2.2$9.8 million, or 13.3%38.1%.

In the three-month periods ended June 30,March 31, 2019 and 2018, and 2017, our financial income included mostly gains from marketable securities and interest earned on our bank deposits.

The finance expenses (income) by cash and non-cash components are as follows:

As a result of the foregoing, ourOur net loss for the three months ended June 30, 2018March 31, 2019 was $18.6$15.2 million, compared to $16.4$26.0 million for the three months ended June 30, 2017, an increase of $2.2 million, or 13.4%.

Since our inception, we have incurred losses from operations and negative cash flows from our operations. For the sixthree months ended June 30,March 31, 2019 we incurred a net loss of $15.2 million, which included $16.6 million used for operating activities. For the three months ended March 31, 2018 we incurred a net loss of $44.6$26.0 million, which included $36.5 million used for operating activities. For the six months ended June 30, 2017 we incurred a net loss of $30.8 million, which included $20.8$23.2 million used for operating activities.

As of June 30,March 31, 2019, and March 31, 2018, and June 30, 2017 we had a working capital surplus of $41.1$75.7 million and $88.7$38.4 million, respectively, and an accumulated deficit of $185.9$230.6 million and $106.3$167.2 million, respectively.

Our principal source of liquidity as of June 30, 2018March 31, 2019 consisted of cash and investments of $56.4$82.9 million.

On April 13, 2018, we entered into a Securities Purchase Agreement with OrbiMed Partners Master Fund Limited, or OrbiMed, pursuant to which we agreed to issue and sell, in a registered offering by the Company,under an effective shelf registration statement, an aggregate of 2,940,000 ordinary shares, par value NIS 0.16 per share,Ordinary Shares, at a purchase price equivalent to $5.50 per share, representing a premium to the Company’s ordinary shares’ last closing price, for aggregate net proceeds of approximately $16.1 million, after deducting offering expenses. The closing of the issuance and sale of these securities took place on April 16, 2018.

On September 18, 2018, pursuant towe completed an additional follow-on offering under our effective shelf registration statement on Form S-3,in which was filed withwe sold 11,670,000 Ordinary Shares at a price of $6.00 per share, raising net proceeds, after expenses and underwriter commissions, of approximately $65.6 million. After the SEC on April 2, 2018closing of the offering, the underwriters exercised an option to purchase 1,750,500 additional Ordinary Shares at the per share price of the offering. The proceeds from the exercise of the option, net of expenses and became effective on April 12, 2018.underwriter commissions, were approximately $9.8 million, bringing the total net proceeds from the offering to approximately $75.4 million.

We anticipate that with our existing cash and investments we will be able to fund our planned operating expenses and capital expenditure requirements for the third Phase III clinical trialthrough mid-2020. These planned expenses include: (a) pre-commercialization and launch preparations for FMX101, assuming we receive regulatory approval, (b) full development and NDA filling for FMX101, which we expect to submit by the endfiling of 2018, and for the two Phase III clinical trialsan NDA for FMX103, which we expect to completesubmit in 2019.mid-2019, and (c) certain pipeline development activities. We expect we will need additional funding to support our operating expenses and capital requirements for the second half of 2020 and beyond, including with regard to the commercialization of any of our product candidates if they are granted regulatory approval, and to fund our internal and external research and development efforts. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

To date, we have financed our operations through private and public placements of our ordinary shares,Ordinary Shares, convertible loans and through fees, cost reimbursements and royalties received from our licensees.

From inception through June 30, 2018,March 31, 2019 we have received net cash proceeds of approximately $204.7$280.1 million from the issuance of ordinary shares,Ordinary Shares, preferred shares, exercise of options and warrants and from convertible loans.

The following table summarizes our statement of cash flows for the six-monththree-month periods ended June 30, 2018March 31, 2019 and 2017:2018:

The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and measurements and changes in components of working capital. Adjustments to net income for non-cash items mainly include depreciation and amortization and share-based compensation.

Net cash used in operating activities was $36.5$16.6 million in the sixthree months ended June 30, 2018,March 31, 2019, compared to $20.8$23.2 million in the sixthree months ended June 30, 2017.March 31, 2018. The increasedecrease was attributable primarily to the increasedecrease in activity related mostly to clinical trials and payroll expenses.trials.

Net cash provided by investing activities has beenwas $7.7 million in the three months ended March 31, 2019, compared to $20.0 million in the three months ended March 31, 2018. The decrease in investing activities was attributable primarily related to a decrease in proceeds from the sale and maturity of marketable securities and bank deposits. Net cash provided by investing activities was $15.3 million in the six months ended June 30, 2018, compared to net cash provided by investing activities of $35.2 million in the six months ended June 30, 2017. The change in investing activities was attributable primarily to an increase in investment in bank deposits and a decrease in proceeds from the sale and maturity of marketable securities.

Net cashThere was $16,000 provided by financing activities was $17.0 million in the sixthree months ended June 30, 2018,March 31, 2019, compared to $129,000none in the sixthree months ended June 30, 2017.March 31, 2018. The increase was attributable primarily to the proceeds from the issuance of shares to OrbiMed based on the aforementioned Securities Purchase Agreement, in an aggregate net proceeds of approximately $16.1 million, after deducting offering expenses, and to the increase in the amount of $840,000 in proceeds from the exercise of warrants.options.

The table below summarizes our main sources of financing for the six-monththree-month periods ended June 30, 2018March 31, 2019 and 2017:2018: