ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis contain forward-looking statements about our plans and expectations of what may happen in the future. You should read the following discussion and analysis in conjunction with “Item 8. Financial Statements and Supplementary Data,” and our consolidated financial statements beginning on page F-1 of this report. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in “Item 1A. Risk Factors.” See also the “Special Cautionary Notice Regarding Forward-Looking Statements” set forth at the beginning of this report.

In July 2019, the Financial Accounting Standards Board (which we refer to as “FASB”) issued Accounting Standards Update 2019-07, “Codification Updates to SEC Sections-Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification", which changes were meant to simplify certain disclosures in financial condition and results of operations, particularly by eliminating year-to-year comparisons between prior periods previously disclosed. This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Overview

We are a commercial-stage biopharmaceutical company developing and delivering novel therapies for central nervous system (“CNS”) conditions that have limited treatment options. By focusing on this therapeutic area, we are addressing significant and growing markets where current treatment options are limited or inadequate. The Company’s CNS portfolio includes three not yet approved product candidates, AXS-07, AXS-12, and AXS-14, which are being developed for multiple indications, and two approved products - Auvelity® (sometimes also referred to as "AXS-05") and Sunosi® - both of which are also being developed for further indications. In May 2022, the Company completed the U.S. acquisition of Sunosi from Jazz Pharmaceuticals ("Jazz") and in November 2022, the Company acquired the ex-U.S. assets of Sunosi from Jazz for certain international markets (the "Acquisition"). Sunosi is a product approved by the FDA and marketed in the U.S. to improve wakefulness in adult patients with excessive daytime sleepiness ("EDS") associated with narcolepsy or obstructive sleep apnea, and also approved in Europe in January 2020 by the European Commission. In August 2022, the Company announced the FDA approval, and in October 2022, the U.S. commercial availability, of Auvelity. Auvelity is an indication for the treatment of major depressive disorder in adults. Refer to Part I, Item 1. "Business" for a summary of our clinical programs.

Since our incorporation in January 2012, our operations to date have included organizing and staffing our company, business planning, raising capital, developing our compounds, engaging in other discovery and preclinical activities, and the commercial launches of Sunosi and Auvelity. Subsequent to our IPO, we financed our operations primarily through proceeds from sales of our common stock to equity investors and debt borrowings. For a further discussion, see the section entitled “Liquidity and Capital Resources” below.

Our ability to become profitable depends on our ability to generate revenue. We have recently begun commercial sales of Sunosi and Auvelity but we have limited experience with commercializing these, or any, products.

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We have incurred significant operating and net losses since inception. We incurred net losses of $187.1 million and $130.4 million for the years ended December 31, 2022 and 2021, respectively. Our accumulated deficit as of December 31, 2022 was $596.3 million, and we expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect our expenses to increase in connection with our ongoing activities, as we continue the commercialization of our on-market products and the development and clinical trials of, and seek regulatory approval for, our current product candidates and any other product candidates that we develop or in-license and advance to clinical development. Further, we have incurred and will continue to incur additional costs associated with operating as a public company. Accordingly, we may need additional financing to support our continuing operations. We may seek to fund our operations through public or private equity, debt financings, or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.

Financial Overview

Product sales, net

Net revenues from product sales consist of Sunosi, which, subsequent to our acquisition from Jazz, we began selling in the U.S. in May 2022 and certain international markets in November 2022, and Auvelity, which was made available in October 2022.

We expect that Sunosi and Auvelity revenues are likely to fluctuate based on demand quarter to quarter. We will not generate revenue from other products unless and until we successfully develop, obtain regulatory approval of, and commercialize one of our current or future product candidates. We have incurred significant operating losses since inception. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue from such product candidates, and our results of operations and financial position, would be materially and adversely affected. If we enter into licensing or collaboration arrangements, such agreements may not generate revenue in the future.

Cost of product sales

Cost of product sales include direct costs of formulating, manufacturing and packaging drug product, overhead costs consisting of labor, customs, stock-based compensation, shipping, outside inventory management, royalty expense, and other miscellaneous operating costs.

Research and Development Expenses

Research and development expenses primarily include preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits, stock‐based compensation expense, contract services, including external research and development expenses incurred under arrangements with third parties, such as contract research organizations, or CROs, facilities costs, overhead costs, depreciation, and other related costs.

Research and development activities are central to our business model. We will incur substantial costs beyond our present and planned clinical trials in order to file a new drug application, or NDA, for any of our product candidates. It is difficult to determine with certainty the costs and duration of our current or future clinical trials and preclinical studies, or if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates if we obtain regulatory approval. We may never succeed in achieving regulatory approval. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical trials and preclinical studies, uncertainties in clinical trial enrollment rate, and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability, and commercial viability. 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.

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The following table summarizes our research and development expenses by program for the years ended December 31, 2022 and 2021:

Year Ended

December 31,

Other research and development expenses primarily consist of employee salaries and benefits, facilities and overhead costs. Beginning July 2021, employee salaries and benefits were allocated to specific products.

Selling, general and administrative expenses

Selling, general and administrative expenses were primarily consist of salaries and related costs for personnel in executive, commercial, finance, and operational functions, and include stock-based compensation and travel expenses. Also included in selling, general and administrative expenses are commercial costs, marketing, pre-commercialization costs, facility-related costs, insurance expense, professional fees for legal and accounting services, and patent filing and prosecution costs. Selling, general and administrative expenses are expensed when incurred.

Interest expense, net

Interest expense, net, primarily consists of cash interest and non-cash costs related to our term loans (see “Liquidity and Capital Resources” below for a further discussion). We amortize these costs over the term of our debt agreements as interest expense in our consolidated statement of operations. Interest expense, net also includes interest income earned on cash.

Intangible Assets

Fair value in contingent consideration

Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). The royalty payments due to Jazz are a high single-digit royalty on our U.S. net sales of Sunosi in the current indication and a mid single-digit royalty on our U.S. net sales of Sunosi for future indications. Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations during such period a change is recognized. The Company estimates the fair value of the contingent consideration as of the acquisition date and reporting periods thereafter using the estimated future cash outflows based on future sales.

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Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements appearing elsewhere in this report, we believe the following accounting policies are critical to the judgments and estimates we use in the preparation of our consolidated financial statements.

Revenue Recognition

Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration that result from: invoice discounts for prompt payment and distribution service fees, government rebates, Pharmacy Benefit Managers ("PBMs") and Managed Care Organization rebates, chargebacks, discounts and fees, product returns and costs of co-pay assistance programs for patients. Reserves are established for the estimates of variable consideration based on the amounts earned or to be claimed on the related sales. The reserves are classified as reductions to Accounts receivable, net or accrued expenses and other current liabilities. The Company's estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current, and forecasted) that is reasonably available. These reserves reflect our best estimate of the amount of consideration to which the Company is entitled based on the terms of the contracts.

We make significant estimates and judgments that materially affect our recognition of net product revenue. Claims by third parties for rebates, chargebacks and discounts frequently are submitted to us significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. We will adjust our estimates based on new information, including information regarding actual rebates, chargebacks and discounts for our products, as it becomes available.

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Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses consist primarily of personnel costs for our research and development employees, costs incurred to third-party service providers for the conduct of research, preclinical and clinical studies, laboratory supplies, product license fees, consulting and other related expenses. We estimate research, preclinical and clinical study expenses based on services performed, pursuant to contracts with third-party research and development organizations that conduct and manage research, preclinical and clinical activities on our behalf. We estimate these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments associated with licensing agreements to acquire licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternative future use are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Goodwill

Goodwill is deemed to have an indefinite life and therefore not amortized. We test the carrying amounts of goodwill for recoverability on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. We perform a one-step test in its evaluation of the carrying value of goodwill if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to its carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value, and a charge is reported in impairment of goodwill in our consolidated statements of operations. As of December 31, 2022, the Company has determined that it has one reporting unit. The Company has not identified any events or changes in circumstances that indicate the existence of potential impairment of goodwill during the year ended December 31, 2022.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit of ten years. We evaluate the recoverability of intangible assets periodically by considering events or changes in circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. We have not identified any events or changes in circumstances that indicate the existence of potential impairment of intangible assets during the year ended December 31, 2022.

Contingent Consideration

Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). The royalty payments due to Jazz are a high single-digit royalty on the Company's U.S. net sales of Sunosi in the current indication and a mid single-digit royalty on the Company's U.S. net sales of Sunosi for future indications. Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations during such period a change is recognized. We estimate the fair value of the contingent consideration as of the acquisition date and reporting periods thereafter using the estimated future cash outflows based on future sales. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded within total liabilities in the consolidated balance sheets.

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Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position as well as consideration of the available facts and circumstances. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. As of December 31, 2022, we do not believe any material uncertain tax positions are present.

As of December 31, 2022, we had U.S. federal net operating loss, or NOL carryforwards of approximately $458 million and foreign NOL carryforwads of $7.8 million. U.S. federal NOLs amounting to $60 million generated before the 2018 tax year will start expiring beginning 2032, and the NOLs of approximately $398 million generated in 2018 and later have an indefinite carryforward period.

Utilization of the NOLs may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended. The annual limitation for net operating losses incurred before the 2018 tax year may result in expiration before we can use them. We have recorded a valuation allowance on all of our deferred tax assets.

Stock‐based compensation

For issued stock options, we estimate the grant date fair value of each option using the Black‐Scholes option pricing model. The Black-Scholes model takes into account the expected volatility of our common stock, the risk-free interest rate, the estimated life of the option, the closing market price of our common stock, expected dividend yield and the exercise price. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management judgment. In addition, we recognize expense for equity award forfeitures as they occur. For awards subject to service-based vesting conditions, we recognize stock-based compensation expense on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, we recognize stock-based compensation expense using the accelerated attribution method when it is probable that the performance condition will be achieved. The expense related to the stock-based compensation is recorded within the financial statement line item the grantee’s cash compensation is recorded in.

Our policy upon exercise of stock options is that shares will be issued as new shares drawing on our 2015 Omnibus Incentive Compensation Plan share pool that was adopted by the stockholders in November 2015.

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Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021:

Year ended December 31,

Revenues:

Operating expenses:

Cost of product sales (excluding amortization and depreciation) 5,197,595 —

Loss in fair value of contingent consideration 3,298,230 —

Intangible asset amortization 4,139,228 —

Net loss per common share, basic and diluted $ (4.60 ) $ (3.47 )

Product sales, net. Auvelity was launched on October 19, 2022 and had U.S. net sales of $5.2 million for the year ended December 31, 2022. No Auvelity sales were reported by Axsome for the 2021 comparable period reflecting the timing of the Auvelity approval and launch. Additionally, we began selling Sunosi in the U.S. in May 2022 and in certain international markets in November 2022, and recorded net sales of $44.8 million for the year ended December 31, 2022, which included $0.9 million in ex-U.S. market net sales. No Sunosi sales were reported by us for the 2021 comparable periods, reflecting the acquisition of Sunosi.

Cost of product sales. Total cost of product sales was $5.2 million for the year ended December 31, 2022 compared to none for the 2021 comparable periods, reflecting the acquisition of Sunosi and launch of Auvelity.

Research and Development Expenses. Our research and development expenses for the year ended December 31, 2022, were $57.9 million, compared to $58.1 million for the year ended December 31, 2021, a decrease of $0.2 million. See "Research and Development" section in the "Overview" section above for more further information.

Selling, general and administrative expenses. Our selling, general and administrative expenses for the year ended December 31, 2022, were $159.3 million, compared to $66.6 million for the year ended December 31, 2021, an increase of $92.7 million.

Loss in Fair Value of Contingent Consideration. The change in fair value of contingent consideration was primarily due to the change in discount rates due to market changes.

Intangible asset amortization. As part of the Sunosi acquisition preliminary purchase price allocation, we determined the identifiable intangible asset is developed technology. We amortize the intangible asset over its useful life of 10 years.

Interest expense, net. Interest expense, net for the year ended December 31, 2022, was $7.3 million, compared to $5.7 million for the year ended December 31, 2021, an increase of $1.6 million. The increase is mainly due to a higher debt balance compared to the prior comparable period due to the execution of the Second Amendment to the 2020 Term Loan in May 2022.

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Liquidity and Capital Resources

Since our inception through December 31, 2022, we have financed our operations primarily through equity offerings, debt borrowings and proceeds from product sales. See discussion below.

Equity

On December 2, 2022, we filed an automatic shelf registration statement with the SEC for the issuance of common stock, preferred stock, warrants, rights, debt securities and units up to an unlimited amount, which we refer to as the 2022 Shelf Registration Statement. It was declared effective by the SEC upon filing. In the future, we may conduct additional offerings of one or more of these securities utilizing the 2022 Shelf Registration Statement in such amounts, prices and terms to be announced when and if the securities are offered. At the time any of our securities covered by the 2022 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.

In December 2019, we entered into a sales agreement, or the December 2019 Sales Agreement, with SVB Leerink, pursuant to which we may sell up to $80 million in shares of our common stock from time to time through SVB Leerink, acting as our sales agent, in one or more at-the-market offerings utilizing the automatic shelf registration statement we previously filed with the SEC on December 5, 2019, which we refer to as the 2019 Shelf Registration Statement. SVB Leerink is entitled to receive a commission of 3.0% of the gross proceeds for any shares sold under the December 2019 Sales Agreement.

In March 2022, we entered into a sales agreement, or the March 2022 Sales Agreement, with SVB Securities, pursuant to which we may sell up to $200 million in shares of our common stock from time to time through SVB Securities, acting as our sales agent, in one or more at-the-market offerings utilizing the 2019 Shelf Registration Statement. SVB Securities is entitled to receive a commission of up to 3.0% of the gross proceeds for any shares sold under the March 2022 Sales Agreement. The March 2022 Sales Agreement supersedes the December 2019 Sales Agreement, by and between the Company and SVB Securities. The Company exhausted sales of its shares of the Company’s common stock under its prior at-the-market offering program.

In August 2022, we filed a prospectus supplement to the 2019 Shelf Registration Statement for the issuance and sale, if any, of up to an additional $250 million in shares of our common stock under the March 2022 Sales Agreement. We will pay SVB Securities a commission of up to 3.0% of the gross sales proceeds of any shares sold through SVB Securities, acting as sales agent, under the March 2022 Sales Agreement.

In December 2022, in connection with the 2022 Shelf Registration Statement, we filed a new sales agreement prospectus to replace the prior prospectus supplement filed in August 2022 associated with the expired 2019 Shelf Registration Statement. The new sales agreement prospectus covered the issuance and sale by us of up to the same $250 million of our common stock that may be issued and sold from time to time through SVB Securities, as our sales agent, under the March 2022 Sales Agreement.

Under the December 2019 Sales Agreement and March 2022 Sales Agreement, for the year ended December 31, 2022, we received approximately $238.8 million in gross proceeds through the sale of 5,167,973 shares, of which net proceeds were approximately $231.8 million.

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Debt

In March 2022, we entered into a Second Amendment to the Loan Agreement with Hercules. The Second Amendment amends the terms of that certain Loan and Security Agreement, dated as of September 25, 2020, by and among us, Hercules and the Lenders (as amended by that certain First Amendment to Loan and Security Agreement, dated as of October 14, 2021, and as further amended by the Second Amendment). In connection with the Second Amendment, the parties also clarified certain terms of the Warrant Agreement previously issued to Hercules. The Second Amendment was effective upon the closing of the Acquisition on May 9, 2022. See “Contractual Obligations and Commitments - March 2022 Second Amendment to the Loan and Security Agreement – Hercules'” section below for more information.

In January 2023, we entered into a Third Amendment to the Loan Agreement with Hercules. The Third Amendment amends the terms of that certain Loan and Security Agreement, dated as of September 25, 2020, by and among us, Hercules and the Lenders (as amended by that certain First Amendment to Loan and Security Agreement, dated as of October 14, 2021, and as further amended by the Second Amendment to Loan and Security Agreement, dated as of March 27, 2022). The Third Amendment, among other things, increased the size of the aggregate principal amount of the 2020 Term Loan from $300,000,000 to $350,000,000, reduced the interest rate, and extended the maturity and interest-only period of the Loan Agreement. See “Contractual Obligations and Commitments - January 2023 Third Amendment to the Loan and Security Agreement – Hercules” section below for more information.

In the future, we may conduct additional offerings of one or more of the securities covered by the 2022 Shelf Registration Statement in such amounts, prices and terms to be announced when and if the securities are offered. At the time any of our securities covered by the 2022 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.

We believe that our current cash, along with the remaining committed capital from the $350 million term loan facility, is sufficient to fund anticipated operations into cash flow positivity, based on the current operating plan, which includes the continued commercialization of Sunosi and Auvelity. Because the process of commercializing products and evaluating product candidates in clinical trials is costly and the timing of progress in these trials is uncertain, it is possible that the assumptions upon which we have based this estimate may prove to be wrong, and we could use our capital resources sooner than we currently expect.

Cash Flows

The following table summarizes our primary sources and uses of cash for the periods indicated:

Year Ended December 31,

Net cash (used in) provided by:

Operating Activities. Net cash used in operating activities for the year ended December 31, 2022, was $116.5 million as compared to $108.2 million for the year ended December 31, 2021. The increase of $8.3 million in net cash used was mainly due to commercialization activities.

Investing Activities. Cash used in investing activities for the year ended December 31, 2022 was $53.7 million as compared to $0.3 million for the year ended December 31, 2021. The increase was primarily due to the Sunosi acquisition for $53.0 million.

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Financing Activities. Net cash provided by financing activities for the year ended December 31, 2022, was $284.6 million, which included net proceeds of the sale of common stock through our December 2019 and March 2022 Sales Agreement with SVB Securities of $231.8 million, net proceeds from Tranche 1B related to the Second Amendment of the Loan and Security Agreement with Hercules of $45.0 million along with the purchase of 152,487 shares of our common stock for a total consideration of $5.0 million by Hercules, and proceeds from the issuance of common stock upon exercise of employee stock options of $6.3 million, offset by payment of contingent consideration and tax withholdings on stock awards for a total of $3.0 million.

Funding requirements

We have not achieved profitability since our inception, and we expect to continue to incur significant losses for the foreseeable future. We expect our losses to decrease over time if we are able to successfully commercialize Auvelity and Sunosi. We are subject to all of the risks pertinent to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may harm our business.

We may need to raise additional financing in the future to fund our operations. In the event that we need additional financing, we may incur additional debt, license certain intellectual property, and seek to sell additional equity or convertible securities that may result in dilution to our stockholders. If we raise additional funds through the issuance of equity or convertible securities, these securities could have rights or preferences senior to those of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our future capital requirements will depend on many factors, including:

•

the commercial success of our products;

•

the scope, rate of progress, results, and cost of our clinical studies and other related activities;

•

our ability to enter into collaborative agreements for the development and commercialization of our product candidates;

•

the number and development requirements of any other product candidates that we pursue;

•

the costs, timing, and outcome of regulatory reviews of our product candidates;

•

the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive marketing approval;

•

any product liability or other lawsuits related to our product candidates;

•

the expenses needed to attract and retain skilled personnel;

•

the general and administrative expenses related to being a public company;

•

the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; and

•

the costs involved in preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending our intellectual property‐related claims.

Please see “Risk Factors” for additional risks associated with our substantial capital requirements.

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Contractual Obligations and Commitments

The following is a summary of our contractual obligations as of December 31, 2022:

Less than More than

Total one year 1 - 3 years 3 - 5 years 5 years

License agreement with Pfizer

In January 2020, we entered into a license agreement with Pfizer. Under the terms of our exclusive license agreement with Pfizer, Pfizer received 82,019 shares of our common stock having a value of $8.0 million, based on the average closing price of the Company’s common stock for the 10 prior trading days of $97.538, in consideration for the license and rights. Pfizer also received an upfront cash payment of $3.0 million and will also receive up to $323 million upon the achievement of certain regulatory and sales milestones, and tiered mid-single to low double-digit royalties on future sales. Pfizer will also have a right of first negotiation on any potential future strategic transactions involving AXS-12 and AXS-14. For a more detailed description of these agreements, please see “Business—Material License Agreements.”

License agreements with Antecip Bioventures

Under three exclusive license agreements with Antecip Bioventures II LLC, or Antecip, an entity owned by our Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., we are obligated to make specified royalty payments ranging from 1.5% to 4.5%, subject to up to a 50% reduction depending on required payments to third parties, on net sales of licensed products. For a more detailed description of these agreements, please see “Business—Material License Agreements.” Due to the commercial launch of Auvelity in the fourth quarter of 2022, we recorded an accrual for royalty payments due to Antecip equal to 3.0% of net sales.

March 2022 Second Amendment to the Loan and Security Agreement – Hercules

In March 2022, we entered into a Second Amendment to Loan and Security Agreement with Hercules Capital, Inc. The Second Amendment amends the terms of that certain Loan and Security Agreement, dated as of September 25, 2020, by and among us, Hercules and the Lenders (as amended by that certain First Amendment to Loan and Security Agreement, dated as of October 14, 2021, and as further amended by the Second Amendment). In connection with the Second Amendment, the parties also clarified certain terms of the Warrant Agreement previously issued to Hercules. The Second Amendment was effective upon the closing of the Acquisition on May 9, 2022.

The Second Amendment changed the Term Loan Advance (as defined in the Loan Agreement) amounts and dates available under Tranche 1 through Tranche 5, including increasing the Tranche 1 Advance (as defined in the Loan Agreement) from $60.0 million to $95.0 million, changing the Tranche 2 Advances (as defined in the Loan Agreement) from two sub-tranches of $50.0 million each to three sub-tranches of $35.0 million, $35.0 million and $30.0 million, respectively, changing the Tranche 3 Advance (as defined in the Loan Agreement) from one tranche of $20.0 million to two sub-tranches of $15.0 million and $5.0 million, respectively, decreasing the Tranche 4 Advance (as defined in the Loan Agreement) from $55.0 million to $50.0 million, and decreasing the Tranche 5 Advance (as defined in the Loan Agreement) from $75.0 million to $35.0 million; (iii) modified the interest rate (a floating rate based on the greater of (a) 8.95% or (b) US WSJ Prime + 5.70%) to not exceed 10.70%; and (iv) changed the minimum cash requirement of the Company from $15,000,000 (plus certain accounts payable amounts) to $40,000,000 (plus certain accounts payable amounts), provided that upon U.S. Food and Drug Administration (the “FDA”) approval of the Company’s AXS-05 product candidate for the treatment of major depressive disorder, the minimum cash requirement shall be $25.0 million (plus certain accounts payable amounts). The $40.0 million threshold decreased to $25.0 million upon achievement of the AXS-05 milestone.

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January 2023 Third Amendment to the Loan and Security Agreement – Hercules

The Third Amendment amended the terms of the Loan Agreement to, among other things, (i) extend the maturity date to January 1, 2028, unless the Company meets certain revenue targets as described in the Loan Agreement, in which case the Company can extend the maturity date to January 1, 2029; (ii) increase the aggregate principal amount under the Loan Agreement from $300,000,000 to $350,000,000; (iii) subject to the terms and conditions in the Loan Agreement, change the Term Loan Advance amounts and dates available under the Tranche 1 Advance (as defined in the Loan Agreement) through Tranche 5 Advance (as defined in the Loan Agreement), including increasing the Tranche 1 Advance from one tranche of $95,000,000 to five sub-tranches of $95,000,000, $55,000,000, $30,000,000, $35,000,000 and $35,000,000, respectively, changing the Tranche 2 Advance (as defined in the Loan Agreement) from three sub-tranches of $35,000,000, $35,000,000 and $30,000,000 to one tranche of $25,000,000, changing the Tranche 3 Advance (as defined in the Loan Agreement) from two sub-tranches of $15,000,000 and $5,000,000 to one tranche of $75,000,000, and removing the Tranche 4 Advance (as defined in the Loan Agreement) and Tranche 5 Advance entirely; (iv) revise the interest rate applicable to extensions of credit under the Loan Agreement to equal the greater of 9.95% per annum or the prime rate plus 2.20% per annum, (v) increase the minimum cash requirement of the Company to $30,000,000; and (vi) require the Company to pay a facility fee equal to 0.75% of the amount of principal actually funded pursuant to the Tranche 1B Advance (as defined in the Loan Agreement), Tranche 1C Advance (as defined in the Term Loan), Tranche 1D Advance (as defined in the Loan Agreement), Tranche 1E Advance (as defined in the Term Loan), Tranche 2 Advance and Tranche 3 Advance.

Royalty Agreements

On March 25, 2022, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Jazz, pursuant to which the Company was to acquire commercial and development rights with respect Sunosi from Jazz (the “Acquisition”) in certain U.S. and ex-U.S. markets. Pursuant to the Purchase Agreement, we agreed to make non-refundable, non-creditable royalty payments to Jazz equal to a (A) high-single digit royalty for any Current Indication or (B) mid-single digit royalty for any Future Indication, of Net Sales in the U.S. Territory made during the applicable Royalty Term (in each case, as those terms are defined in the Purchase Agreement). There are no royalty payments due to Jazz for Net Sales outside of the U.S. Territory.

At the initial closing, we assumed all of the commitments of Jazz to SK and Aerial. SK is the originator of Sunosi and retains rights in 12 Asian markets, including China, Korea, and Japan. In 2014, Jazz acquired from Aerial worldwide rights to Sunosi excluding those Asian markets stated previously. The assumed commitments to SK and Aerial include single-digit tiered royalties based on our sales of Sunosi, and we are committed to pay up to $165 million based on revenue milestones and $1 million based on development milestones.

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In 2012, we entered into three exclusive license agreements with Antecip Bioventures II LLC, or Antecip, an entity owned by our Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., in which we were granted exclusive licenses to develop, manufacture, and commercialize Antecip’s patents and applications related to the development of AXS-05 anywhere in the world for veterinary and human therapeutic and diagnostic use, and additional patents and applications that are not relevant to our current programs in development. The agreements were amended in August 2015 to update the schedule of patents and applications subject to the license agreements. Pursuant to the agreements, we are required to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize AXS-05. Under the terms of the agreements, we are required to pay to Antecip a royalty equal to 3.0% for AXS-05, of net sales of products containing the licensed technology by us, our affiliates, or permitted sublicensees. These royalty payments are subject to reduction by an amount up to 50.0% of any required payments to third parties. Unless earlier terminated by a party for cause or by us for convenience, the agreements remain in effect on a product by product and country by country basis until the later to occur of (1) the applicable product is no longer covered by a valid claim in that country or (2) 10 years from the first commercial sale of the applicable product in that country. Upon expiration of the agreements with respect to a product in a country, our license grant for that product in that country will become a fully paid up, royalty free, perpetual non exclusive license. If Antecip terminates any of the agreements for cause, or if we exercise our right to terminate any of the agreements for convenience, the rights granted to us under such terminated agreement will revert to Antecip. Due to the commercial launch of Auvelity in the fourth quarter of 2022, we recorded an accrual for royalty payments due to Antecip equal to 3.0% of net sales.

License Agreement with Pharmanovia

On February 21, 2023, Axsome Malta Ltd., a Malta limited company (“Axsome Malta”), a wholly-owned subsidiary of the Company, entered into a License Agreement (the “License Agreement”) with Atnahs Pharma UK Limited (Pharmanovia), a company organized and existing under the laws of England and Wales (the “Licensee”), pursuant to which Axsome Malta will license certain Licensed Intellectual Property (as defined in the License Agreement) to the Licensee and grant an exclusive license to Licensee in the Territory (as defined in the License Agreement and which includes Europe and certain countries in the Middle East and Africa) for use of the Licensed Intellectual property for the development and commercialization of the Company’s Licensed Products (as defined in the License Agreement and which includes the Company’s product Sunosi).

Shelf Registration Statement

On December 2, 2022, we filed a Form S-3ASR (File No. 333-235372) with the SEC, or the 2022 Shelf Registration Statement, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, which became effective immediately upon filing. At the time any of the securities covered by the 2022 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.

Off‐Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off‐balance sheet arrangements, as defined by applicable SEC regulations.

Recent Accounting Pronouncements

Refer to Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements included in Part IV, Exhibits and Financial Statement Schedules, of this Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations. We had cash of $200.8 million as of December 31, 2022. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short‐term nature of our investment portfolio and debt agreement, we do not believe an immediate 100 basis point increase in interest rates would have a material effect on the fair market value of our portfolio, and, accordingly, we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

Foreign Currency Exchange Risk

We contract with vendors and third-party manufactures located in Europe and certain invoices are denominated in foreign currencies. We are therefore subject to fluctuations in foreign currency rates in connection with these agreements, and recognize foreign exchange gains or losses in our statement of operations. We have not historically hedged our foreign currency exchange rate risk. To date, we have not incurred any material effects from foreign currency changes on these contracts.

We do not believe a 10% change in these currencies on December 31, 2022, would have had a material effect on our results of operations or financial condition.

Inflation Risk

Inflation generally affects us by increasing our cost of labor and pricing of contracts. We do not believe that inflation has had a material effect on our business, financial condition, or results of operations during the year ended December 31, 2022.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our consolidated financial statements and the notes thereto, included in Part IV, Item 15(a), part 1, are incorporated by reference into this Item 8.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

None.

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, mean controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

Management’s Annual Report on Internal Controls over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO Framework. Our management has concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on these criteria.

The independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on our internal control over financial reporting. The report on the audit of internal control over financial reporting is included in this Annual Report on Form 10 K.

Inherent Limitations on Effectiveness of Controls. Our management, including our principal executive officer and principal financial officer, does not expect that our internal controls over financial reporting and procedures will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

Changes in Internal Controls over Financial Reporting. During the year ended December 31, 2022, other than continuing changes to our internal control process resulting from acquisition of Sunosi and commercialization of Auvelity, there have been no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as described in the previous paragraph, there has been no change in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION.

On February 21, 2023, the Company entered into a sublease agreement (the “Sublease”) with Advance Magazine Publishers Inc. (d/b/a Condé Nast) to sublease approximately 48,000 rentable square feet of office space located at One World Trade Center, New York, NY. The term of the Sublease is for a period of ten years commencing on the date that is the later to occur of (A) the full execution and delivery of the Sublease by both Condé Nast and the Company, (B) the date Condé Nast receives Prime Landlord’s (as defined in the Sublease) written consent to the Sublease and (C) the date on which Conde Nast’s Work (as defined in the Sublease) is deemed to have been substantially completed and Condé Nast has delivered the Premises (as defined in the Sublease) to the Company in the Premises Condition (as defined in the Sublease).

Under the Sublease, the Company’s fixed rent obligation for the first five years is at the rate of $2,521,272 per annum, payable in equal monthly installments of $210,106, and for the next five years, at the rate of $2,763,702 per annum, payable in equal monthly installments of $230,308.

The Company expects this new leased facility to serve as its new corporate headquarters following the expiration of its current leased facility at 22 Cortlandt St, New York, NY in April 2023.

The foregoing description of the Sublease does not purport to be complete and is qualified in its entirety by reference to the complete terms and conditions of the Lease to be filed as an exhibit to the Company’s next periodic report filed with the SEC.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders or will be included in an amendment to this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

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PART IV

ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES.

(a)

1. Consolidated Financial Statements

The following consolidated financial statements of Axsome Therapeutics, Inc. are filed as part of this report.

Contents Page

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42) F-1

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-5

Notes to the Consolidated Financial Statements F-9

2. Consolidated Financial Statement Schedules

The financial statement schedule entitled “Schedule II – Valuation and Qualifying Accounts” has been omitted since the information required is included in the consolidated financial statements and notes thereto. Other schedules are omitted because they are not applicable, or the required information is shown in the Financial Statements or notes thereto.

3. Exhibits

The list of exhibits filed with this report is set forth in the Exhibit Index following the signature page and is incorporated herein by reference.

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Axsome Therapeutics, Inc.

Index to Consolidated Financial Statements

Page

Reports of Independent Registered Public Accounting Firm F-1

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-5

Notes to Consolidated Financial Statements F-9

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Axsome Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Axsome Therapeutics, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Reserve for variable consideration for commercial managed care

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2014.

New York, New York

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February 27, 2023

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Axsome Therapeutics, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Axsome Therapeutics, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Axsome Therapeutics, Inc’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 27, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

New York, New York

February 27, 2023

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Axsome Therapeutics, Inc.

Consolidated Balance Sheets

December 31, December 31,

Assets

Current assets:

Liabilities and stockholders’ equity

Current liabilities:

Contingent consideration, current 5,900,000 —

Contingent consideration, non-current 31,100,000 —

Stockholders’ equity:

The accompanying notes are an integral part of the consolidated financial statements.

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Axsome Therapeutics, Inc.

Consolidated Statements of Operations

Year ended December 31,

Revenues:

Operating expenses:

Cost of product sales (excluding amortization and depreciation) 5,197,595 — —

Loss in fair value of contingent consideration 3,298,230 — —

Intangible asset amortization 4,139,228 — —

Loss on extinguishment of debt — — (1,247,012 )

Net loss per common share, basic and diluted $ (4.60 ) $ (3.47 ) $ (2.77 )

The accompanying notes are an integral part of the consolidated financial statements.

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Axsome Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

Common stock Additional Accumulated Totalstockholders’

Shares Amount paid-in capital deficit equity

Issuance of warrants upon debt financing — — 884,216 — 884,216

Issuance of common stock upon vesting of RSUs 6,191 1 — — 1

Issuance of common stock upon vesting of RSUs 21,214 2 (2 ) — 0

Shares tendered for withholding taxes — — (531,832 ) — (531,832 )

The accompanying notes are an integral part of the consolidated financial statements.

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Axsome Therapeutics, Inc.

Consolidated Statements of Cash Flows

Year ended December 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Non-cash research and development license expense — — 7,155,337

Amortization of intangible asset 4,139,228 — —

Loss on extinguishment of debt — — 1,247,012

Loss in fair value of contingent consideration 3,298,230 — —

Changes in operating assets and liabilities:

Accounts receivable, net (37,698,868 ) — —

Cash flows from investing activities

Cash paid for business combination (53,000,000 ) — —

Cash flows from financing activities

Repayment of principal on term loan — — (21,660,000 )

Payment of contingent consideration (2,438,230 ) — —

Payments of tax withholdings on stock award (531,831 ) (175,713 ) —

Supplemental disclosures of cash flow information:

Supplemental non-cash investing activities:

Fair value of contingent consideration in a business combination 37,000,000 — —

Supplemental disclosures of non-cash financing activity:

Issuance of warrants in connection with debt financing — — 884,216

The accompanying notes are an integral part of the consolidated financial statements.

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Axsome Therapeutics, Inc.

Notes to Consolidated Financial Statements

Note 1. Nature of Business and Basis of Presentation

Axsome Therapeutics, Inc. (“Axsome” or the “Company”) is a biopharmaceutical company developing and delivering novel therapies for central nervous system (“CNS”) conditions that have limited treatment options. By focusing on this therapeutic area, the Company is addressing significant and growing markets where current treatment options are limited or inadequate. The Company was incorporated on January 12, 2012 in the State of Delaware. The Company’s CNS portfolio includes three not yet approved product candidates, AXS-07, AXS-12, and AXS-14, which are being developed for multiple indications, and two approved products - Auvelity® (also referred to as "AXS-05") and Sunosi® - both of which are also being developed for further indications. In May 2022, the Company acquired Sunosi from Jazz Pharmaceuticals ("Jazz") for sale in the U.S. and in November 2022, following the ex-U.S. assets acquisition from Jazz, the Company began selling Sunosi in certain ex-U.S. markets. Sunosi is a product approved by FDA and marketed in the U.S. to improve wakefulness in adult patients with EDS ("excessive daytime sleepiness") associated with narcolepsy or obstructive sleep apnea, and also approved in Europe in January 2020 by the European Commission. In August 2022, the Company announced the FDA approval of Auvelity and in October 2022, the U.S. commercial availability of Auvelity. Auvelity is indicated for the treatment of major depressive disorder in adults. The Company aims to become a fully integrated biopharmaceutical company that develops and commercializes differentiated therapies that expand the treatment options available to caregivers and improve the lives of patients living with CNS disorders. The Company refers herein to Sunosi, Auveity, AXS-05, AXS-07, AXS-12, AXS-14, solriamfetol, and its programs to develop additional indications for Sunosi and Auvelity, as the Company’s products.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated during the consolidation process.

Liquidity and Capital Resources

The Company has incurred operating losses since its inception and expects to continue to incur operating losses for the foreseeable future and may never become profitable. As of December 31, 2022, the Company had an accumulated deficit of $596.3 million.

The Company’s primary sources of cash have been proceeds from the issuance and sale of its common stock in public offerings and the issuance of debt. Sales of Sunosi and Auvelity recently initiated. The Company’s ability to achieve profitability depends on a number of factors, including its ability to obtain regulatory approval for its product candidates, successfully complete any post-approval regulatory obligations and successfully commercialize its product candidates alone or in partnership. The Company may continue to incur substantial operating losses even if it begins to generate revenues from its product candidates.

The Company believes its current cash will be sufficient to fund its anticipated operating cash requirements for at least twelve months following the date of this filing. The actual amount of cash that the Company will need to operate is subject to many factors, including, but not limited to, the timing, design and conduct of clinical trials for its product candidates. The Company may use a combination of public and private equity offerings, debt financings, other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements if market conditions are favorable or in light of other strategic considerations to finance its future cash needs.

The Company’s common stock is listed on the Nasdaq Global Market and trades under the symbol “AXSM”.

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Impact of COVID-19

In December 2019, a novel (new) coronavirus known as SARS-CoV-2 was first detected in Wuhan, Hubei Province, People’s Republic of China, causing outbreaks of the coronavirus disease, known as COVID-19, that has now spread globally. On January 30, 2020, the World Health Organization (WHO) declared COVID-19 a public health emergency. The Secretary of Health and Human Services declared a public health emergency in the United States on January 31, 2020, under section 319 of the Public Health Service Act (42 U.S.C. 247d), in response to the COVID-19 outbreak. On March 11, 2020, the WHO declared COVID-19 a global pandemic. The full impact of the ongoing COVID-19 pandemic is still unknown and rapidly evolving. While the potential economic impact brought by and over the duration of the COVID-19 pandemic may be difficult to assess or predict, the COVID-19 pandemic has resulted in significant disruption of global financial markets, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market volatility resulting from the COVID-19 pandemic could affect the Company’s business. Given the nature and type of the Company’s short-term investments, the Company does not believe the COVID-19 pandemic has had or will have a material impact on the Company’s current investment liquidity.

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Note 2. Summary of Significant Accounting Policies

Significant Risks and Uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s product candidates; the Company’s ability to obtain regulatory approval to market its products, if approved; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products, if approved; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, if approved; and the Company’s ability to raise additional financing. If the Company's commercialization of its products is not financially successful, it will be unable to generate sufficient recurring product revenue to achieve and maintain profitability.

The Company currently has two commercially approved products, Auvelity and Sunosi, and there can be no assurance that the Company’s research and development efforts will result in successfully commercialized products in addition to Auvelity and Sunosi. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.

Use of Estimates

Management considers many factors in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these financial statements, management used significant estimates in the following areas, among others: stock‐based compensation expense; the determination of the fair value of the warrants; the accounting for research and development costs; accounting for acquisitions; impairments goodwill and intangible assets; contingent consideration; chargebacks, cash discounts, sales rebates, returns and other adjustments; and the recoverability of the Company’s net deferred tax assets and related valuation allowance.

Revenue Recognition

In accordance with ASC Topic 606, the Company recognizes revenue when the customer obtains control of a promised good or service, in an amount that reflects the consideration that the Company expects to receive in exchange for the good or service. Transfer of control is based on contractual performance obligations, which occurs upon transfer of the title along with the physical transfer of the Company's goods to the customer, as that is when the customer has obtained control of significantly all of the economic benefits and the Company obtains a right of payment. The reported results for the year ended December 31, 2022 reflect the application of ASC Topic 606.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to arrangements that meet the definition of a contract under ASC Topic 606, including when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for product sales, see Product Sales, net (below). Payment terms are typically 90 days or less.

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Product Sales, net

In 2022, the Company sold Sunosi and Auvelity in the United States through a single third-party logistic provider ("3PL"), which takes title and control of the goods. The 3PL distributed the product to wholesale distributors (collectively the "Distributors") with whom the Company has entered into formal agreements for delivery to retail pharmacies. The company sells Sunosi internationally through local distributors for delivery primarily to retail pharmacies and hospitals. For the year ended December 31, 2022, Product sales, net were $44.8 million for Sunosi, including $0.9 million in ex-U.S. markets, and $5.2 million for Auvelity.

Reserves for Variable Consideration

The Company's estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available. These reserves reflect our best estimate of the amount of consideration to which the Company is entitled based on the terms of the contracts. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the estimates. If actual results in the future vary from our estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The provision for rebates, discounts, and other incentives is based on expected patient usage, as well as inventory levels in the distribution channel to determine the contractual obligation to the benefit providers. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for rebates, discounts, and other incentives and returns, which

are established at the time of sale. The Company uses customer segment utilization mix data, changes to product price, government pricing calculations and prior payment history in order to estimate the variable consideration. Amounts accrued for rebates, discounts, and other incentives are adjusted when trends indicate that adjustment is appropriate and to reflect actual experience.

Trade Discounts and Allowances - The Company generally provides discounts which include incentive fees that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company compensates (through trade discounts and allowances) its distributors for distribution services and data. These payments have been recorded as a reduction to product sales as well as a reduction to accounts receivables, net on the consolidated balance sheets.

Product Returns - Consistent with industry practice, the Company generally offers a limited right of return for product that has been purchased from the Company based on the product’s expiration date. The Company estimates the amount of its product sales that may be returned and records this estimate as a reduction of revenue in the period the related product sales is recognized, as well as a component of accrued expense and other current liabilities. The Company currently estimates product return liabilities using available industry data and its own sales information.

Chargebacks and Discounts - Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products at prices lower than the list prices charged to distributors. Distributors charge the Company for the difference between what they pay for the product and the ultimate selling price. These reserves are established in the same period that the related product sales are recognized, resulting in a reduction to product sales and accounts receivables, net.

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Rebates - Rebates apply to: Medicaid, managed care, and supplemental rebates to all applicable states as defined by the statutory government pricing calculation requirements under the Medicaid Drug Rebate Program. Tricare rebates to the TRICARE third party administrator based on the statutory calculation defined in the agreement with Defense Health Agency. Part D and Commercial Managed Care rebates are paid based on the contracts with Pharmacy Benefit Managers ("PBMs") and Managed Care Organizations. Rebates are paid to these entities upon receipt of an invoice from the contracted entity which is based on the utilization of the product by the members of the contracted entity. The Company estimates these rebates and records such estimates in the same period the related product sales is recognized, resulting in a reduction to product sales as well as a component of accrued expense and other current liabilities.

Coverage Gap - The Medicare Part D coverage gap is a period of consumer payment for prescription medication costs which lies between the initial coverage limit and the catastrophic-coverage threshold, when the patient is a member of a Medicare Part D prescription-drug program administered by the Centers for Medicare & Medicaid Services. The Company estimates the percentage of goods sold under Coverage Gap and adjusts the transaction price for such discount at the time of sale resulting in a reduction to product sales as well as a component of accrued expense and other current liabilities.

Other Incentives - Other incentives which the Company offers include voluntary patient assistance programs, such as the co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payers. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product sales as well as a component of accrued expense and other current liabilities.

The Company makes significant estimates and judgments that materially affect its recognition of net product revenue. Claims by third-party payors for rebates, chargebacks and discounts frequently are submitted to the Company significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. The Company will adjust its estimates based on new information, including information regarding actual rebates, chargebacks and discounts for its products, as it becomes available.

Foreign Currency Translation

Expenses denominated in foreign currency are translated into U.S. dollars at the exchange rate on the date the expense is incurred. Assets and liabilities of foreign operations are translated at period-end exchange rates. The effect of exchange rate fluctuations on translating foreign currency into U.S. dollars is included in the Statements of Operations and is not material to the Company’s financial statements.

Segment and Geographic Information

Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment and reporting unit, which is the business of developing and delivering novel therapies for the management of CNS disorders.

Cash Equivalents

The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. The Company’s cash and cash equivalents includes holdings in checking and overnight sweep accounts. The Company’s cash equivalents, which are money market funds held in a sweep account, are measured at fair value on a recurring basis. As of December 31, 2022, the balance of cash and cash equivalents was $200.8 million, which approximates fair value and was determined based upon Level 1 inputs. The sweep account is valued using quoted market prices with no valuation adjustments applied. Accordingly, these securities are categorized as Level 1.

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Concentration of Risk

Concentration of Credit Risk - Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company maintains its cash at financial institutions, which at times, exceed federally insured limits. At December 31, 2022, the majority of the Company’s cash was held by one financial institution and the amount on deposit was in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not recognized any losses from credit risks on such accounts since inception and does not believe that it is exposed to any significant credit risk with respect to cash and cash equivalents. See Accounts Receivables, net below for further information.

Concentration of Risk, Other- We have a limited number of contract manufacturers for our products. At times we may have only one manufacturer or supplier for a product.

Business Combination

The Company accounted for the Sunosi acquisition as a business combination using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from acquired patented technology. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

As a result of the acquisition of Sunosi from Jazz, the Company recorded goodwill and an intangible asset.

Goodwill

Goodwill is deemed to have an indefinite life and therefore not amortized. The Company tests the carrying amounts of goodwill for recoverability on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performs a one-step test in its evaluation of the carrying value of goodwill if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to its carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value, and a charge is reported in impairment of goodwill in the Company’s consolidated statements of operations. The Company intends to complete its annual goodwill assessment in the first quarter. As of December 31, 2022, the Company has determined that it has one reporting unit. The Company has not identified any events or changes in circumstances that indicate the existence of potential impairment of goodwill during the year ended December 31, 2022.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit of ten years. The Company evaluates the recoverability of intangible assets periodically by considering events or changes in circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. The Company has not identified any events or changes in circumstances that indicate the existence of potential impairment of intangible assets during the year ended December 31, 2022.

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Contingent Consideration

Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). The royalty payments due to Jazz are a high single-digit royalty on the Company's U.S. net sales of Sunosi in the current indication and a mid single-digit royalty on the Company's U.S. net sales of Sunosi for future indications. Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations during such period a change is recognized. The Company estimates the fair value of the contingent consideration as of the acquisition date and reporting periods thereafter using the estimated future cash outflows based on future sales. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded within total liabilities in the consolidated balance sheets.

Fair Value Measurements

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:

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

Level 3—Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. An asset's or liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s financial instruments are cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, current and long-term debt, current and non-current contingent consideration. The carrying values for cash, accounts payable and accrued liabilities reported in the accompanying consolidated financial statements approximate their respective fair values due to their short-term maturities, and therefore considered Level 1 within the fair value hierarchy. The carrying value of debt on the Company’s balance sheet (see Note 6 – Loan and Security Agreement), is estimated to approximate its fair value as the interest rate approximates the market rate for loans with similar terms and risk characteristics, and therefore considered Level 1 within the fair value hierarchy. The key assumptions used to determine the fair value of acquisition-related assets and liabilities are estimated by management, not observable in the market and, therefore considered Level 3 inputs within the fair value hierarchy.

Accounts Receivable, net

The Company’s accounts receivable, net, arise from product sales. They are generally stated at the invoiced amount and do not bear interest. Accounts receivable allowances result from chargebacks, prompt pay discounts, and distribution fees.

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The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the customers’ credit profiles. In 2022, primarily all of the Company's accounts receivables, net, was generated from the Company's contracted 3PL. Outside of the U.S., accounts receivables are derived from a variety of customers spread across different geographic areas. The Company estimates expected credit losses of its accounts receivable by assessing the risk of loss and available relevant information about collectability, including historical credit losses, existing contractual payment terms, actual payment patterns of its customers, individual customer circumstances, and reasonable and supportable forecast of economic conditions expected to exist throughout the contractual life of the receivable. The Company has not historically experienced significant credit losses. Based on its assessment, as of December 31, 2022, the Company has not recorded any allowances for doubtful accounts receivable. As of December 31, 2022, there is $9.1 million of reserves for Variable Consideration recorded as an allowance against Accounts Receivable, net primarily due to Trade Discounts and Allowances and Chargebacks.

Debt Issuance Costs

Debt issuance costs consist of costs incurred in obtaining long-term financing. These costs are classified on the consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These expenses are deferred and amortized as part of interest expense in the consolidated statement of operations using the effective interest rate method over the term of the debt agreement.

Inventory

The Company values its inventories at the lower of average cost or estimated net realizable value. The remaining inventory associated with the Sunosi acquisition is stated at fair value due to purchase accounting. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated net realizable value in the period in which the impairment is first identified. Such impairment charges, if they occur, are recorded within cost of product sales.

The Company capitalizes inventory costs associated with the Company’s products after regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Inventory acquired and manufactured prior to receipt of regulatory approval of a product candidate is expensed as research and development expense as incurred. Inventory that can be used in either the production of clinical or commercial product is expensed as research and development expense when selected for use in a clinical manufacturing campaign.

Inventory levels are evaluated for amounts that would be sold within one year. If the level of inventory exceeds the estimated amount that would be sold beyond the next 12 months, the Company classifies the estimate of such inventory as non-current.

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Equipment, net

Equipment consists primarily of computer equipment and is recorded at cost. Equipment is depreciated on a straight‐line basis over its estimated useful life, which the Company estimates to be three years. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in operating expenses.

Cost of Product Sales

The Company's cost of product sales relates to sales of Sunosi and Auvelity. Cost of product sales primarily include direct costs (inclusive of material, shipping, handling, and manufacturing costs), overhead and product royalties. Cost of product sales excludes depreciation and amortization. Cost of product sales were $5.2 million for the year ended December 31, 2022. There were no sales in 2021.

The Company assumed royalty and sales-based milestone commitments of Jazz to SK Biopharmaceuticals (“SK)” and Aerial Biopharma (“Aerial”). SK is the originator of Sunosi and retains rights in 12 Asian markets, including China, Korea, and Japan. In 2014, Jazz acquired from Aerial worldwide rights to Sunosi excluding those Asian markets stated previously. The assumed commitments to SK and Aerial include single-digit tiered royalties based on the Company's sales of Sunosi, and the Company is committed to pay up to $165 million based on revenue milestones and $1 million based on development milestones. The Company pays a royalty to Antecip equal to 3.0% of Auvelity net sales.

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Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses consist primarily of employee-related expenses including salaries, benefits, travel, and stock‐based compensation expense, contract services, costs incurred to third-party service providers for the conduct of research, preclinical and clinical studies, laboratory supplies, product license fees, consulting and other related expenses. We estimate research, preclinical and clinical study expenses based on services performed, pursuant to contracts with third-party research and development organizations that conduct and manage research, preclinical and clinical activities on our behalf. We estimate these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments associated with licensing agreements to acquire licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternative future use are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Advertising Costs

Advertising costs are included in selling, general and administrative expenses and are expensed as incurred. The Company considers advertising costs as expenses related to the promotion of the Company's commercial products. For the year ended December 31, 2022, advertising costs were $35.3 million. The Company did not have commercial products in 2021 and 2020.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2022 and has not recorded an income tax benefit for the year ended December 31, 2022 and 2021 since it determined that a full valuation allowance is required against the Company’s deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position as well as consideration of the available facts and circumstances. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. As of December 31, 2022, the Company does not believe any material uncertain tax positions are present. In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of income tax expense.

Stock-Based Compensation

For stock options issued, the Company estimates the grant date fair value of each option using the Black‐Scholes option pricing model. The Black-Scholes model takes into account the expected volatility of the Company’s common stock, the risk-free interest rate, the estimated life of the option, the closing market price of the Company’s common stock and the exercise price. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management’s judgment. In addition, the Company recognizes expense for equity award forfeitures as they occur.

For restricted stock units (“RSUs”), the Company issues them in the form of Company common stock. The fair market value of these awards is based on the market closing price per share on the grant date.

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For awards subject to service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, the Company recognizes stock-based compensation expense using the accelerated attribution method when it is probable that the performance condition will be achieved. The expense related to the stock-based compensation is recorded within the same financial statement line item as the grantee’s cash compensation.

The Company’s policy upon exercise of stock options and RSUs is that shares will be issued as new shares drawing on the Company’s 2015 Omnibus Incentive Compensation Plan share pool that was adopted by the stockholders in November 2015.

Basic and Diluted Net Loss per Common Share

Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, stock options, and RSUs, which would result in the issuance of incremental shares of common stock. As the impact of these items is anti-dilutive during periods of net loss, there was no difference between basic and diluted net loss per share of common stock for the year ended December 31, 2022 and 2021.

Leases

The Company determines if an arrangement is a lease at contract inception. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. When evaluating whether a contract contains a lease, the Company considers whether (1) the contract explicitly or implicitly identifies assets that are contractually defined and (2) the Company obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract.

The Company’s lease agreement contains lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company has applied the practical expedient to combine fixed payments for non-lease components with lease payments and account for them together as a single lease component, which increases the amount of lease assets and corresponding liabilities. Payments under the Company’s lease arrangement are primarily fixed, however variable payments, are expensed as incurred and not included in the operating lease asset and liability.

Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses the implicit interest rate when readily determinable and uses the Company’s incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments.

The Company’s operating leases are reflected in the right-of-use operating asset; operating lease liability, current portion; and operating lease liability, long-term portion in the Company’s consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, and do not include an option to extend the term or purchase the underlying asset that the Company is reasonably certain to exercise, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease.

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Recent Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805). This update requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The amendments in this update should be applied prospectively, and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this ASU for fiscal year ended December 31, 2022 and concluded it did not have a material impact on the Company's financial statements. See Note 3 - Business Combination for further information.

Note 3. Business Combination

Acquisition of Assets of Jazz Pharmaceuticals

On March 25, 2022, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Jazz, pursuant to which the Company was to acquire commercial and development rights with respect Sunosi from Jazz (the “Acquisition”) in certain U.S. and ex-U.S. markets. The Acquisition occurred in two separate closings. The sale and purchase of Specified Initial Assets as defined and contemplated by the Purchase Agreement occurred on May 9, 2022 (“Initial Closing”), following the satisfaction or waiver of the closing conditions under the Purchase Agreement. The sale and purchase of Specified Ex-U.S. Assets contemplated by the Purchase Agreement occurred on November 14, 2022 (“Final Closing” or “Ex-U.S. Closing”), and primarily consisted of inventory. The Company accounted for the Initial Closing as a business combination using the acquisition method of accounting and the Ex-U.S. Closing as an asset acquisition.

Under the terms of the Purchase Agreement, the Company received from Jazz worldwide commercial, development, manufacturing, and intellectual property rights to Sunosi, except for certain Asian markets. Jazz received from the Company a total upfront payment of $53 million. In addition, Jazz will receive a high single-digit royalty on the Company's U.S. net sales of Sunosi in the current indication, and a mid single-digit royalty on the Company's U.S. net sales of Sunosi in future indications. The Company also assumed the commitments of Jazz to SK Biopharmaceuticals (“SK)” and Aerial Biopharma (“Aerial”). SK is the originator of Sunosi and retains rights in 12 Asian markets, including China, Korea, and Japan. In 2014, Jazz acquired from Aerial worldwide rights to Sunosi excluding those Asian markets as stated previously. The assumed commitments to SK and Aerial include single-digit tiered royalties based on the Company's sales of Sunosi, and additionally, the Company is committed to pay up to $165 million based on revenue milestones and $1 million based on development milestones. The Company financed the transaction via its $300 million term loan facility with Hercules Capital, Inc.

In conjunction with the Acquisition, the Company incurred approximately $0.5 million in transaction costs, which were expensed as selling, general, and administrative expense in the consolidated statement of operations during the year ended December 31, 2022.

The Company's results of operations associated with Sunosi for the year ended December 31, 2022, include $44.8 million of net product sales and $13.1 million of net loss. This is included in the Company's consolidated statement of operations for the year ended December 31, 2022.

Preliminary purchase consideration consisted of the following:

Fair value of contingent consideration 36,140,000

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The preliminary allocation of the fair value of the Sunosi acquisition is shown in table below:

Accrued expenses and other current liabilities (709,000 ) — (709,000 )

(1) The adjustment to goodwill resulted from rebates covered by Jazz during the post acquisition period which were provisionally recorded as an asset as of the acquisition date.

The above allocation of the purchase price is based upon certain preliminary valuations and other analyses that have not been finalized as of the date of this filing. As such, the purchase price amount and allocations for this transaction are preliminary estimates including developed technology, goodwill and contingent consideration, which may be subject to change within the measurement period.

The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates.

Inventories acquired included raw materials, work in process and finished goods for Sunosi. Inventories were recorded at their estimated fair values categorized as Level 3. The fair value of finished goods was determined based on the estimated selling price, net of selling costs and a margin on the selling activities. The fair value of work in process was determined based on estimated selling price, net of selling costs and costs to complete the manufacturing, and a margin on the selling and manufacturing activities. The fair value of raw materials was estimated to equal the replacement cost. A step-up in the value of inventory of $1.1 million was originally recorded in connection with the Acquisition and is being amortized through cost of product sales as the underlying product is sold.

Other current assets acquired were sample inventory and the rebates for Sunosi sales by the Company after the Initial Closing to be covered by Jazz.

Intangible assets include acquired developed technology. The fair value of the acquired developed technology asset was determined by applying the income approach, which recognizes that the fair value of an asset is premised upon the expected receipt of future economic benefits such as earnings and cash inflows based on current sales projections and estimated direct costs, using a discount rate of 43.5% that reflects the return requirements of the market. The intangible asset is being amortized over an estimated useful life of 10 years.

Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. Goodwill of $10.3 million was established as a result of the Acquisition. The Company expects that the entire amount of the purchase price allocated to goodwill will be deductible for U.S. income tax purposes over a 15-year period.

Accrued expense and other current liabilities acquired were the Company's assumed sales returns liability for Sunosi after the transaction close date related to Jazz sales prior to the Initial Closing.

Pro Forma Consolidated Financial Information (Unaudited)

The following unaudited pro forma summary presents consolidated information of the Company, including Sunosi, as if the business combination had occurred on January 1, 2021, the earliest period presented herein:

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Year Ended December 31,

These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.

Note 4. Goodwill

Goodwill of $10.3 million was recorded in connection with the Sunosi acquisition as described in Note 3 Business Combination. The adjustment to goodwill resulted from rebates covered by Jazz during the post acquisition period which were provisionally recorded as an asset as of the acquisition date.

The following table provides the Company’s goodwill as of December 31, 2022.

Goodwill

Balance at December 31, 2021 $ —

Goodwill from Sunosi Acquisition 11,897,000

Measurement period adjustment (1,587,000 )

Note 5. Intangible Asset

The gross carrying amount and net book value of the Company's intangible asset are as follows:

Estimated fair value Remaining Weighted-Average Useful Life

Balance at December 31, 2021 $ —

Accumulated Amortization (4,139,228 )

Based on finite-lived intangible assets recorded as of December 31, 2022, and assuming the underlying assets will not be impaired and that we will not change the expected lives of the assets, future amortization expenses were estimated as follows:

Estimated Amortization Expense

Note 6. Fair Value Measurements

In connection with the Sunosi acquisition, the Company pays an uncapped royalty on U.S. net sales of Sunosi to Jazz. The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. The fair value of the contingent consideration is reflected as current accrued contingent consideration of $5.9 million and non-current contingent consideration liability of $31.1 million in the consolidated balance sheet as of December 31, 2022.

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The fair value of financial instruments measured on a recurring basis is as follows:

May 9, 2022 Level 1 Level 2 Level 3 Total

Liabilities:

December 31, 2022 Level 1 Level 2 Level 3 Total

Liabilities:

The fair value of the contingent consideration was remeasured at December 31, 2022. The fair value of the financial instruments as of December 31, 2022 is as follows:

Contingent Consideration

Balance at December 31, 2021 $ —

Loss in fair value of contingent consideration 3,298,230

The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

Revenue Required Metric Risk Premium rate 20.9% 20.8%

The fair value measurement of the contingent consideration is sensitive to the change in discount rates. As of December 31, 2022, if the discount rate increases or decreases by approximately 1%, the fair value of the contingent consideration would range from $35.3 million to $38.8 million. As of December 31, 2022, if the revenue discount rate increases or decreases by approximately 1%, the fair value of the contingent consideration would range from $35.8 million to $38.3 million.

Note 7. Inventory

Inventory consists of the following:

As of December 31, 2022, inventories included $1.0 million related to the purchase accounting inventory fair value step-up on inventory acquired in the Sunosi Acquisition for the U.S. Territory.

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There were no material inventory reserves as of December 31, 2022. Non-current inventory, which consists of raw materials and work in progress inventory, is included in non-current inventory and other assets in the Company's consolidated balance sheets. Non-current inventory is anticipated to be consumed beyond our normal operating cycle.

The following table summarizes the balance sheet classification of the Company's inventory for each of the periods indicated:

Balance sheet classification

Non-current inventory and other assets 13,707,889

Note 8. Accrued Expenses and Other Current Liabilities

At December 31, 2022 and 2021, accrued expenses consisted of the following:

Accrued sales discounts, rebates and allowances 26,544,510 —

Note 9. Loan and Security Agreement

Hercules Capital, Inc.

Second Amendment to the Loan Agreement

On March 27, 2022, in connection with the Acquisition (as described above), the Company entered into a Second Amendment to the Loan and Security Agreement (the “Second Amendment”) with Hercules Capital, Inc., or Hercules. The Second Amendment closed on May 9, 2022 concurrently with the closing of the Acquisition.

The Second Amendment amends the terms of that certain Loan and Security Agreement, dated as of September 25, 2020 (as amended by the First Amendment to the Loan and Security Agreement, dated of October 14, 2021) (the “Loan Agreement”). The changes in the Term Loan Advances (as defined in the Loan Agreement) amounts and dates are as follows: (i) increasing the Tranche 1 (as defined in the Loan Agreement) from $60.0 million to $95.0 million, whereby $45.0 million was drawn upon the Second Amendment closing date (ii) changing the Tranche 2 Advances to three sub-tranches of $35.0 million, $35.0 million and $30.0 million, respectively, for a same total value of $100.0 million, which is now accessible at the Company's option upon the achievement of the approval of AXS-05 (iii) changing the Tranche 3 Advance to two sub-tranches of $15.0 million and $5.0 million, respectively, for the same total value of $20.0 million, upon approval of AXS-07 (iv) decreasing the Tranche 4 Advance from $55.0 million to $50.0 million, available upon achievement of certain combined sales and outstanding debt criteria and (v) decreasing the Tranche 5 Advance from $75.0 million to $35.0 million, subject to the approval from Hercules. The outstanding balance of the debt bears interest at a floating rate based on the greater of (a) 8.95% or (b) US WSJ Prime + 5.70%) to not exceed 10.70%.

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As collateral for the obligations, the Company has granted to Hercules a senior security interest in all of Company’s right, title, and interest in, to and under all of Company’s property, inclusive of intellectual property, which includes one of the Company’s existing license agreements (the “License Agreement”) with Antecip Bioventures II LLC (“Antecip”), an entity owned by Axsome’s Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., subject to limited exceptions. Antecip consented to the collateral assignment of the License Agreement, among other things, under a direct agreement (the “Direct Agreement”) with the Company and Hercules.

The Loan Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens (including a negative pledge on intellectual property and other assets), guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. At the initial closing, there were no applicable financial covenants contained in the Loan Agreement. Only after additional amounts are drawn down by the Company in the future, if the Company decides to do so, under the terms set forth in the Loan Agreement, there will be certain limited financial covenants that will apply, including:

•

Effective upon closing of the Second Amendment of the Loan Agreement, the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to $40.0 million, plus the amount of the Company’s accounts payable under U.S. GAAP not paid after the 180th day following the invoice for such account payable (such amount, the “Qualified Cash A/P Amount”). The $40.0 million threshold decreased to $25.0 million upon achievement of the AXS-05 milestone.

•

Effective upon the (i) the last calendar month of the calendar quarter that is nine months following the earlier of (x) the date that the First Milestone is achieved (y) the date that the Second Milestone is achieved, or (z) the final closing date of the Sunosi acquisition (A) ensure that at all times its market capitalization exceeds $1.0 billion, and that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 50% of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, (B) ensure that at all times that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 85% of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, or (C) achieve at least 60% of the net product revenue per the board of directors approved forecast solely from the sale of AXS-05, AXS-07, and Sunosi (which may include royalty, profit sharing, or sales-based milestone revenue recognized in accordance with GAAP, but will not include any upfront or non-sales-based milestone payments under business development or licensing transactions), measured on a trailing six-month basis as of the date of the Company’s most recent quarterly financial statement, determined on a quarterly basis.

•

Restrictions on the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses, with certain exceptions.

The Company’s obligations under the Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, insolvency and a material adverse change in the Borrower’s business, operations or financial or other condition.

In addition, the Company is required to pay a final payment fee equal to (A) $2,910,000 in connection with the drawn amount of Tranche 1A plus (B) 4.5% on the draw down of Tranche 1B and the aggregate amount of all term future loan advances. The final payment fee is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

The Company may, at its option prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.0% of the principal amount prepaid if the prepayment occurs prior to the first anniversary of the First Amendment Closing Date, (ii) 1.5% of the principal amount prepaid if the prepayment occurs on or after the first anniversary and prior to the second anniversary of the First Amendment Closing Date, and (iii) 1.0% of the principal amount prepaid if the prepayment occurs on or after the second anniversary and prior to the third anniversary of the First Amendment Closing Date. These percentages are unchanged from the First Amendment to the Loan Agreement.

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The Company evaluated whether the Hercules Term Loan entered into in March 2022 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt – Modifications and Extinguishments. As the present value of the cash flows under the terms of the Second Amendment to the Hercules Agreement is less than 10% different from the remaining cash flows under the terms of the First amendment, the Second Amendment was accounted for as a debt modification. The unamortized balance of debt discount costs incurred in connection with those loans and additional debt discount costs incurred in connection with entry into the Hercules Second Amendment to the Loan Agreement, are being amortized through maturity in October 2026 utilizing the effective interest rate method.

In January 2023, the Company entered into a Third Amendment (the "Third Amendment") to its Loan and Security Agreement (the “Loan Agreement”) with Hercules. The Third Amendment increases the size of the Term Loan Advance (as defined in the Loan Agreement) to $350,000,000, reduces the interest rate, and extends the maturity and interest-only period of the Loan Agreement. $55.0 million was drawn upon the Third Amendment closing date. See Note 18 - Subsequent Events for further information.

The Third Amendment amended the terms of the Loan Agreement to, among other things, (i) extend the maturity date to January 1, 2028, unless the Company meets certain revenue targets as described in the Loan Agreement, in which case the Company can extend the maturity date to January 1, 2029; (ii) increase the aggregate principal amount under the Loan Agreement from $300,000,000 to $350,000,000; (iii) subject to the terms and conditions in the Loan Agreement, change the Term Loan Advance amounts and dates available under the Tranche 1 Advance (as defined in the Loan Agreement) through Tranche 5 Advance (as defined in the Loan Agreement), including increasing the Tranche 1 Advance from one tranche of $95,000,000 to five sub-tranches of $95,000,000, $55,000,000, $30,000,000, $35,000,000 and $35,000,000, respectively, changing the Tranche 2 Advance (as defined in the Loan Agreement) from three sub-tranches of $35,000,000, $35,000,000 and $30,000,000 to one tranche of $25,000,000, changing the Tranche 3 Advance (as defined in the Loan Agreement) from two sub-tranches of $15,000,000 and $5,000,000 to one tranche of $75,000,000, and removing the Tranche 4 Advance (as defined in the Loan Agreement) and Tranche 5 Advance entirely; (iv) revise the interest rate applicable to extensions of credit under the Loan Agreement to equal the greater of 9.95% per annum or the prime rate plus 2.20% per annum, to not exceed 10.70% (v) increase the minimum cash requirement of the Company to $30,000,000; and (vi) require the Company to pay a facility fee equal to 0.75% of the amount of principal actually funded pursuant to the Tranche 1B Advance (as defined in the Loan Agreement), Tranche 1C Advance (as defined in the Term Loan), Tranche 1D Advance (as defined in the Loan Agreement), Tranche 1E Advance (as defined in the Term Loan), Tranche 2 Advance and Tranche 3 Advance.

Silicon Valley Bank

In March 2019, the Company entered into a $24.0 million growth capital term loan facility (the “2019 Term Loan”) with Silicon Valley Bank, or SVB and West River Innovation Lending Fund VIII, L.P., or WestRiver. In September 2020, the Company used a portion of the 2020 Term Loan to terminate and repay all amounts outstanding under the 2019 Term Loan and recorded a loss on extinguishment of the 2019 Term Loan.

Further information on warrants issued related to the debt financings and amendments are disclosed in Note 13 - Warrants.

Long-term debt and unamortized debt discount balances are as follows:

Less: current portion of long-term debt — —

The book value of debt approximates its fair value given its variable interest rate.

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Year ended December 31,

Scheduled Principal Payments on Outstanding Debt, as of December 31, 2022, are as follows:

Total principal payments outstanding $ 95,000,000

Note 10. Commitments and Contingencies

Operating Leases

Leases are accounted for under ASC Topic 842. The Company made an accounting policy election not to apply the recognition requirements to short-term leases. The Company recognizes the lease payments for short-term leases in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term, and variable lease payments in the period in which the obligation for those payments is incurred. Therefore, the Company is not recognizing a lease liability or right-of-use asset for any lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to extend the term or purchase the underlying asset that the Company is reasonably certain to exercise. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company has entered into a lease agreement for the Company’s principal executive offices located in New York, New York. The lease does not include any restrictions or covenants that had to be accounted for under the lease guidance.

The Company entered into a lease for office space at 22 Cortlandt St, New York, NY consisting of the 16th floor effective August 1, 2020. In August 2022, the Company entered into an agreement to extend the lease of 22 Cortlandt Street through April 30, 2023.

Rent expense incurred during the years ended December 31, 2022, 2021 and 2020 was $1,255,165, $1,175,139, and $870,275.

Operating lease expenses recognized for the years ended December 31, 2022, 2021, and 2020 was as follows:

Year ended December 31,

Future minimum lease payments of our operating leases as of December 31, 2022, were as follows:

Thereafter —

Less imputed interest (3,202 )

Present value of operating lease liabilities $ 424,673

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As of December 31, 2022, the remaining lease term for our operating lease was 0.3 years with a discount rate of 6.0%. The interest rate implicit in lease contracts is typically not readily determinable and as such, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

In February 2023, the Company entered into a sub-lease agreement for new corporate and executive office space, commencing March 2023. See Note 18 - Subsequent Events for further information.

Note 11. Net Loss per Common Share

The following table sets forth the computation of basic and diluted net loss per common share:

Year ended December 31,

Basic and diluted net loss per common share:

Net loss per common share—basic and diluted $ (4.60 ) $ (3.47 ) $ (2.77 )

The following potentially dilutive securities outstanding at December 31, 2022, 2021, and 2020 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti‐dilutive:

December 31,

Note 12. Stockholders’ Equity

Capital Structure

In December 2019, the Company entered into a sales agreement (the “December 2019 Sales Agreement”) with SVB Securities LLC (formerly known as SVB Leerink LLC) (“SVB Securities”), pursuant to which the Company may sell up to $80 million in shares of the Company’s common stock from time to time through SVB Securities, acting as the Company’s sales agent, in one or more at-the-market offerings utilizing the automatic shelf registration statement that the Company previously filed with the SEC on December 5, 2019 (the “2019 Shelf Registration Statement”). SVB Securities is entitled to receive a commission of 3.0% of the gross proceeds for any shares sold under the December 2019 Sales Agreement. The December 2019 Sales Agreement was replaced by the March 2022 Sales Agreement (see below).

In March 2022, the Company entered into a sales agreement (the “March 2022 Sales Agreement”) with SVB Securities, pursuant to which the Company may sell up to $200 million in shares of the Company’s common stock from time to time through SVB Securities, acting as the Company’s sales agent, in one or more at-the-market offerings utilizing the 2019 Shelf Registration Statement. SVB Securities is entitled to receive a commission of up to 3.0% of the gross proceeds for any shares sold under the March 2022 Sales Agreement. The March 2022 Sales Agreement supersedes the December 2019 Sales Agreement, dated December 5, 2019, by and between the Company and SVB Securities. The Company exhausted sales of its shares of the Company’s common stock under its prior at-the-market offering program.

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In August 2022, the Company filed a prospectus supplement to the 2019 Shelf Registration Statement for the issuance and sale, if any, of up to an additional $250 million in shares of the Company’s common stock under the March 2022 Sales Agreement. The Company will pay SVB Securities a commission of up to 3.0% of the gross sales proceeds of any shares sold through SVB Securities, acting as sales agent, under the March 2022 Sales Agreement.

In December 2022, in connection with the 2022 Shelf Registration Statement (as defined below), the Company filed a new sales agreement prospectus to replace the prior prospectus supplement filed in August 2022 associated with the expired 2019 Shelf Registration Statement. The new sales agreement prospectus covered the issuance and sale by the Company of up to the same $250 million of our common stock that may be issued and sold from time to time through SVB Securities, as the Company’s sales agent, under the March 2022 Sales Agreement.

Under the December 2019 Sales Agreement and March 2022 Sales Agreement, for the year ended December 31, 2022, the Company received approximately $238.8 million in gross proceeds through the sale of 5,167,973 shares, of which net proceeds were approximately $231.8 million.

Upon the closing of the Second Amendment, Hercules also purchased 152,487 of the Company’s unregistered common stock for a total consideration of $5.0 million at a share price equal to $32.79 per share, pursuant to a share transfer agreement.

The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings. The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors.

Shelf Registration Statement

On December 2, 2022, the Company filed an automatic shelf registration statement (“2022 Shelf Registration Statement”) with the Securities and Exchange Commission (“SEC”) for the issuance of common stock, preferred stock, warrants, rights, debt securities and units. It became effective upon filing with the SEC and is currently the Company’s only active shelf registration. Through the date of this report, the Company has not issued common stock pursuant to such shelf registration statement.

Under SEC rules, the 2022 Shelf Registration Statement allows for the potential future offer and sale by the Company, from time to time, in one or more public offerings of an indeterminate amount of the Company’s common stock, preferred stock, debt securities, and units at indeterminate prices. At the time any of the securities covered by the 2022 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.

Equity Incentive Plans

The Company had granted stock options under its 2013 Equity Compensation Plan (the “2013 Plan”), which was adopted for employees and consultants for the purpose of advancing the interests of the Company's stockholders by enhancing its ability to attract, retain and motivate persons who are expected to make important contributions to the Company. In November 2015, the 2015 Omnibus Incentive Compensation Plan (the “2015 Plan”) was adopted by the Company’s stockholders. The 2015 Plan is the successor to the Company's 2013 Plan. In conjunction with the adoption of the 2015 Plan, no additional grants were made from the 2013 Plan and options from the 2013 Plan remain outstanding. As of December 31, 2022, there were 2,944,176 shares available for future grant under the 2015 Plan.

Modification and Cancellation of Stock Awards

In June 2020, in connection with the decision not to stand for re-election by a member of the Company’s Board of Director’s, the vesting of stock options covering 21,666 shares of common stock was accelerated. As a result of this modification, the Company recorded incremental stock-based compensation expense of approximately $1.3 million for the year ended December 31, 2020.

In November 2020, certain employee Stock Options and Restricted Stock Units were cancelled. Stock options to purchase an aggregate of 38,267 shares of common stock were cancelled, and the Company recognized non-cash stock-based compensation expense of $2.1 million related to this cancellation for the year ended December 31, 2020.

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Restricted Stock Units for an aggregate of 11,735 shares of common stock were cancelled, and the Company recognized non-cash stock-based compensation expense of $0.5 million related to this cancellation for the year ended December 31, 2020.

AXSM US Equity

AXSM · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

ITEM 9A.CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES.

AXSM US Equity☆

AXSM · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

ITEM 9A.CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES.

AXSM US Equity