Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data” and our financial statements and the related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K. All dollar amounts in the below Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in U.S. dollars, and all dollar and share amounts are presented in thousands, unless otherwise noted or the context otherwise provides.
Overview
We are a clinical stage biopharmaceutical company utilizing artificial intelligence approaches to develop transformative medicines in neuroscience and immuno-oncology. Our drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. We believe that this differentiated approach has the potential to reduce the cost and time of drug development in diseases with a substantial unmet medical need.
Our two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation resulting from neuropsychiatric disorders, and BXCL701, an investigational orally administered systemic innate immune activator for the treatment of a rare form of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.
During the first quarter ended March 31, 2020, and continuing through December 31, 2021, COVID-19 was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe. The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.
To date, we have taken steps in line with guidance from the U.S. Centers for Disease Control and Prevention (“CDC”) and the State of Connecticut to protect the health and safety of our employees and the community. In particular, we implemented a work-from-home policy for all employees and have restricted on-site activities to certain chemical, manufacturing and control (“CMC”) and clinical trial activities. We continue to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the operations of our business. Beginning late in the second quarter of 2020, we began to slowly bring our staff, in very limited numbers, back to our office. This modified return-to-work approach is continuing into 2022. We have taken steps to protect our workforce and have instituted strict work rules to protect our employees.
We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic. We remain committed to our clinical programs and development plans. Other than our Phase 2 clinical trial evaluating BXCL501 in patients with delirium through December 31, 2021, we have not experienced any significant delays to our ongoing or planned clinical trials, except for challenges in accessing elderly care facilities and ICU settings; however, this could rapidly change.
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Our Clinical Programs
The following is a summary of the status of our clinical development programs as of the date of this Annual Report on Form 10-K:
Our Novel Drug Re-Innovation Approach
We are developing and implementing holistically throughout the drug development process an artificial intelligence (“AI”) eco system designed to rapidly identify drugs that engage novel targets related to indications in psychiatric and neurological rare diseases. In addition, we focus our development on those indications related to or caused by stress. This capability complements our existing work done with BioXcel LLC’s EvolverAI and the clinical development group by providing a rich source of new previously unexplored opportunities. We have constructed a labeled properties graph (also referred to as a knowledge graph) that visually relates neuropsychiatric symptoms, brain circuits, drug targets and existing drugs. By making these connections, new potential uses for existing drugs emerge. The knowledge graph may be queried to uncover not only single drugs but potentially new combinations of drugs that we believe may be more effective in treating disorders than lone agents. New combinations of drugs provide the opportunity to evaluate lower, potentially safer doses of drugs and also provide the basis for stronger intellectual property positions. The AI team works closely with business development to prioritize the most valuable external opportunities in a data-driven manner. These opportunities may be found in new potential uses for launched drugs, in drugs that are part of pharma company pipelines that are no longer being pursued, or within academic efforts to develop new drug candidates.
In addition to our AI approach to neuropsychiatric symptoms and neurological rare diseases, we are actively examining signaling pathways in tumors that we believe are potential targets for synergistic drug combinations. We believe synergistic drug combinations may allow more effective treatments by reducing the probability of drug adaptation by cancer cells. AI is useful in matching existing oncology drugs and their mechanism of action to specific types of cancer as well as identifying combinations that we believe may have a higher probability of success.
Traditional drug development is plagued with low success rates (13.8%, according to an MIT study of 186,000 trials from January 2000 to October 2015), long drug development cycles (10-15 years, according to PhRMA Key Facts 2016), and exorbitant development costs ($2.6 billion per drug, according to PhRMA Key Facts). Furthermore, many
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serious diseases continue to go unaddressed due to limitations of the current drug discovery paradigm. The pharmacological space spans more than 27,000 active pharmaceutical agents, and only approximately 4,000 are approved and marketed drugs benefiting patients. These marketed drugs may be applied to other indications, including rare diseases, and represent an untapped potential for meeting significant unmet medical need and recoupment of research and development investments. Many of the remaining agents are clinical candidates that are active, shelved, or have failed for reasons other than toxicity and that can potentially be re-engineered for different indications or patient segments. They potentially represent an unrealized investment of billions of research and development dollars by the private and public sectors, resulting in an immeasurable amount of patient suffering and sacrificing during clinical development. Also, these compounds usually have known pharmacokinetic properties allowing for a more data-driven selection of appropriate doses for development programs. Finally, with respect to neuropsychiatric indications, we prioritizes those compounds with structural design features that may contribute to high blood-brain barrier permeability, which may increase the likelihood of compound brain penetration. Lack of brain penetration is a common cause for failure of many drugs developed for neuropsychiatric indications. We are prioritizing compounds with available human safety data, acceptable pharmacokinetic results, and data that support a high probability of achieving reasonable brain concentrations after dosing. The compounds in our pipeline have been identified using this proprietary platform.
This drug re-innovation model has been exemplified by the successful development and commercialization of drugs such as Tecfidera® (Biogen, Inc.), Thalomid® (Celgene Corporation) and Viagra® (Pfizer, Inc.) All of these drugs were identified by insights in biology and disease pathophysiology. The successful business models of biotech companies like Axsome-Therapeutics, Inc. and Karuna Therapeutics, Inc. are based on the re-innovation and combination of existing clinical candidates or marketed drugs to provide novel solutions for patients. Unfortunately, such discoveries have been severely limited in scope due to the lack of a genuinely integrated approach of mining big data and advanced analytics.
Our AI-based discovery and development process is the foundation of our drug re-innovation model for identifying the next wave of potential medicines. Our therapeutic area experts have over 150 years of combined experience across the drug discovery and development value chain. We believe that our method of finding potential product candidates gives us a higher probability of success because it combines the comprehensiveness and efficiency of machine learning and big data analytics with the expertise and intuition of human experience in drug development. We believe the combination of our therapeutic area expertise and our ability to generate therapeutic candidates in neuroscience and immuno oncology through our exclusive collaborative relationship in those areas with BioXcel LLC gives us a significant competitive advantage.
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Our approach is illustrated below:
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Basis of Presentation
The Company’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). All amounts are presented in thousands.
Components of Our Results of Operations
Revenues
We have not recognized any revenue since inception.
Operating Costs and Expenses
Research and Development
Our research and development expenses reflect costs incurred for the research and development of our clinical and pre-clinical product candidates, which includes payments to BioXcel LLC. Research and development expense primarily consist of salary, benefits and non-cash stock-based compensation for our research and development personnel, costs incurred under agreements with contract research organizations (“CROs”) and sites that conduct our non-clinical studies and clinical trials, costs of outside consultants engaged in research and development activities, including their fees, stock-based compensation and travel expenses, the cost of acquiring, developing and manufacturing pre-clinical and clinical trial materials and lab supplies, and depreciation and other expenses.
We expense research and development costs to operations as incurred.
Our research and development costs by program for the years ended December 31, 2021 and 2020 are as follows:
Year Ended
December 31,
Direct external costs
Other research and development programs 1,587 896
Indirect costs and overhead 3,063 1,765
Research and development tax credit (362) (543)
Total research and development expenses $ 52,708 $ 57,995
General and Administrative
General and administrative expenses primarily consist of salaries, benefits and non-cash stock-based compensation for our executive and administrative personnel. General and administrative expenses also include legal expenses to pursue patent protection of our intellectual property, professional fees for audit and tax and insurance charges.
We expect that our general and administrative expenses will increase as we expand our clinical programs. We also expect increased administrative costs resulting from our clinical trials and the potential commercialization of our product candidates. We believe that these increases will likely include increased costs for director and officer liability insurance, hiring additional personnel to support future market research and future product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We may also incur increased costs to comply with corporate
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governance, internal controls, investor relations and disclosures and similar requirements applicable to public companies.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 3 to the financial statements included in this Annual Report on Form 10-K.
Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
Revenues
We have not recognized any revenues since inception.
Research and Development Expense
Research and development expenses for the years ended December 31, 2021 and 2020 were $52,708 and $57,995, respectively. Research and development expenses for the years ended December 31, 2021 and 2020 were comprised as follows:
Year Ended
December 31,
Research and development tax credit (362) (543) 181 33 %
The decrease of $5,287 for the year ended December 31, 2021 is primarily attributable to:
Decreased Clinical trial expenses resulting from the completion of our SERENITY I and II, TRANQUILITY, RELEASE and BXCL501 bioavailability clinical trials, partially offset by increased costs related to the 40mcg cohort expansion of our Tranquility trial. These decreases were further offset by increased costs in our BXCL701 prostate cancer and basket trials.
Lower CMC costs tracked the decrease in fewer BXCL501 manufacturing costs.
The decreases were partially offset by:
Increased personnel and related costs due to our efforts to enlarge our clinical and medical teams as we expanded our clinical and medical programs during the year in preparation of the potential commercial launch of BXCL501 in the U.S.
Increased non-cash stock-based compensation as result of the additional personnel hired during the year. However, the increase was moderated by a combination of reduced expense due to forfeitures and lower grant date fair values resulting from lower market prices of the Company’s common stock.
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The increase in professional fees was generally due to increased regulatory, consulting and toxicology fees related to the BXCL501 program.
Travel and other costs were higher due to increased headcount.
The State of Connecticut provides companies with the opportunity to exchange certain research and development credit carryforwards for cash in exchange for foregoing the carryforward of the research and development credit. The program provides for such exchange of the research and development credit at a rate of 65% of the annual research and development credit. The benefit for such exchange is recorded as a reduction of research and development expenditures. The credit decreased in 2021 as a result of lower clinical trial activity.
General and Administrative Expense
General and administrative expenses for the years ended December 31, 2021 and 2020 were $54,227 and $24,302, respectively. General and administrative expenses for the years ended December 31, 2021 and 2020 were comprised as follows:
Year Ended
December 31,
The increase of $29,925 for the year ended December 31, 2021 is primarily attributable to:
Increased personnel and related costs due to substantially higher headcount in 2021 in preparation of the potential commercial launch of BXCL501 in the U.S.
Increased non-cash stock-based compensation as result of the granting of awards to increased number of personnel hired during the year. However, the increase was moderated by a combination of reduced expense due to forfeitures and lower grant date fair values resulting from lower market prices of the Company’s common stock.
Increased professional fees due to the expanding growth of our operations and was primarily related to increased corporate patent legal fee and investor relations fees.
Significant commercial costs incurred due to the increased complexity and growth as we prepare for the potential commercial launch of BXCL501 in the U.S. We also experienced increased market research fees related to the potential commercial launch of BXCL501 in the U.S.
Increased insurance costs primarily related to an increase in Director and Officer liability premiums.
Travel and other expenses approximated the prior year.
Inflation
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during the periods presented.
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Liquidity and Capital Resources
As of December 31, 2021, we had cash and cash equivalents of $232,968, working capital of $220,145 and stockholders’ equity of $221,667. Net cash used in operating activities was $82,153 and $66,350 for the years ended December 31, 2021 and 2020, respectively. We incurred losses of approximately $106,931 and $82,169 for the years ended December 31, 2021 and 2020, respectively. We have not yet generated any revenues and we have not yet achieved profitability. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need to generate significant product revenues to achieve profitability. We believe that our existing cash and cash equivalents as of December 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this Annual Report on Form 10-K.
We may obtain additional financing through sales of the Company’s equity securities, entering into strategic partnership arrangements and/or short-term borrowings from banks, stockholders or other related parties, if needed, or a combination of any of the foregoing. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light of the economic downturn and ongoing uncertainty related to the COVID-19 pandemic. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates. In addition, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Annual Report on Form 10-K, as the pandemic continues to evolve globally. See “Risk Factors—The COVID-19 pandemic , or other pandemics, epidemics or outbreaks of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.” in Part I, Item 1A. of this Annual Report on Form 10-K for a further discussion of the potential impact of the COVID-19 pandemic on our business.
Sources of Liquidity
We have focused our efforts on raising capital and building the products in our pipeline. Since our inception, our operations have been financed primarily by BioXcel LLC and from proceeds from the sale of equity securities, including stock issuances including our initial public offering, private placements of our common stock, and registered offerings of our common stock and an Open Market Sale Agreement (“ATM Program”). We have not yet established an ongoing source of revenue sufficient to cover our operating costs and will need to do so in future periods.
In May 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company could offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having an aggregate offering price of up to $100,000, from time to time, through an “at the marketing offering” program under which Jefferies will act as sale agent. The Company sold 124 shares under the Sale Agreement in June 2021. As of December 31, 2021, the Company received proceeds of $4,056, net of issuance costs of $500.
In June 2021, the Company sold in a registered offering 3,155 shares of its common stock at a public offering price of $31.70 per share. The Company received proceeds of $96,937, net of issuance costs of $3,042.
In February 2020, we sold in a registered offering 2,300 shares of our common stock at a public offering price of $32.00 per share for gross proceeds of $73,600 less underwriting discounts and commissions. We received net proceeds of approximately $68,811.
We received funds under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in April 2020 in the amount of $537. On April 23, 2020 the Small Business Administration issued a new FAQ #31, which provided guidance on what it means to certify that: “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Following review of this new FAQ #31 we decided to withdraw from the Paycheck Protection Program and have repaid the loan in full together with all accrued interest.
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In July 2020, we sold in a registered offering 4,000 shares of our common stock at a public offering price of $50.00 per share for gross proceeds of $200,000 less underwriting discounts and commissions. We received net proceeds of approximately $186,974.
Cash Flows
Year Ended December 31,
Cash provided by (used in)
Investing activities (445) (316)
Operating Activities
Cash used in operating activities was $82,153 for the year ended December 31, 2021 and was primarily attributable to our $106,931 net loss and a $130 increase in prepaid expense and other assets, partially offset by $19,455 in stock-based compensation and a $4,850 increase in accounts payable and accrued expenses.
Cash used in operating activities was $66,350 for the year ended December 31, 2020 and was primarily attributable to our $82,169 net loss and a $2,301 increase in prepaid expenses and other assets, partially offset by $14,611 in stock-based compensation and a $3,197 increase in accounts payable, accrued expenses and other liabilities.
Investing Activities
Cash used in investing activities was $445 for the year ended December 31, 2021 and was attributable to the purchase of furniture and leasehold improvements.
Cash used in investing activities was $316 for the year ended December 31, 2020 and was attributable to the purchase of equipment and leasehold improvements.
Financing Activities
Cash provided by financing activities was $102,447 for the year ended December 31, 2021 and was attributable to $96,937 in net proceeds from the issuance of common stock in our June 2021 public offering, and $4,056 in net proceeds from the sale of common stock under our ATM Program. Proceeds of $1,454 from the exercise of stock options provided the remainder.
Net cash provided by financing activities was $247,359 for the year ended December 31, 2020 and was primarily attributable to the net proceeds of $68,811 from our February 2020 offering combined with net proceeds of $186,974 from our July 2020 offering. Additionally, we received $598 in proceeds from the exercise of stock options. This amount was partially offset by $9,024 used for the purchase and cancellation of 300,000 shares of common stock owned by BioXcel LLC in February 2020.
Operating Capital and Capital Expenditure Requirements
We expect to continue to incur significant and increasing operating losses at least for the next several years as we expand our clinical trials of BXCL501 and BXCL701, seek marketing approval for our product candidates and pursue development of our other product candidates. We do not expect to generate revenue unless and until we successfully complete development and obtain regulatory approval for our product candidates. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our planned clinical trials and our expenditures on other research and development activities.
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We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. We anticipate that our expenses will increase substantially as we:
•continue our clinical development of BXCL501 and BXCL701;
•conduct additional research and development with our product candidates;
•seek to identify, acquire, license, develop and commercialize additional product candidates;
•integrate acquired technologies into a comprehensive regulatory and product development strategy;
•maintain, expand and protect our intellectual property portfolio;
•hire scientific, clinical, quality control and administrative personnel;
•seek regulatory approvals for any product candidates that successfully complete clinical trials;
•continue to operate as a public company.
We believe that our existing cash and cash equivalents as of December 31, 2021 will be sufficient to enable us to fund operating expenses and capital expenditure requirements for at least the next 12 months from the date of the issuance of the financial statements included in this Annual Report on Form 10-K and will be sufficient to fund our ongoing research and development efforts and commercialization preparation through 2022. We expect that we will need to obtain substantial additional funding in order to fund our operations. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of BXCL501, BXCL701 or other product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to BXCL501, BXCL701 or other product candidates that we otherwise would seek to develop or commercialize ourselves.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with GAAP requires management to exercise its judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements.
On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on a variety of factors including our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products and the regulatory environment. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.
While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
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A description of significant accounting policies that require us to make estimates and assumptions in the preparation of our financial statements is as follows:
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and non-employee service providers, including stock options. The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective in August 2017. The Company’s 2020 Incentive Award Plan (the “2020 Plan”) became effective in May 2020. Following the effective date of the Company’s 2020 Plan, the Company ceased granting awards under the 2017 Plan; however the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.
The Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period. The Company utilizes the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of the stock-based awards. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of the stock options, the expected volatility of our stock and expected dividends. Prior to the IPO, significant judgement and estimates were used to estimate the fair value of these awards, as the shares of common stock underlying these awards were not then publicly traded. Stock awards granted by the Company subsequent to its IPO are valued using market prices at the date of grant. The Company has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.
Research and Development Accruals
Research and development costs are expensed as incurred. Clinical study costs are accrued over the service periods specified in the contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. The Company’s assessment of the completeness of the information is subject to variability and uncertainty. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In addition, in certain circumstances, the determination of the nature and amount of services that have been received during the reporting period requires judgment as the timing and pattern of vendor invoicing does not correspond to the level of services provided. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly.
The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.
Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.
Income Taxes
We use an asset and liability approach for financial accounting and reporting of income taxes. Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax basis assets and liabilities and are measured by applying enacted rates and laws to taxable years in which differences are expected to be recovered or settled. Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate changes. A valuation allowance is required when it is “more likely than not” that all or a portion of deferred tax assets will not be realized.
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We apply the provisions of ASC 740, Income Taxes, which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return, including a decision whether to file or not file a return in a particular jurisdiction. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts.
We do not have any unrecognized tax benefits as of December 31, 2021. We review all tax positions to ensure the tax treatment selected is sustainable based on its technical merits and that the position would be sustained if challenged.
Contractual Obligations and Commitments
In August 2018, the Company entered into an agreement to lease approximately 11,040 square feet of space on the 12th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12th Floor Lease) which was effective February 22, 2019. The 12th Floor Lease expires in February 2026.
In August 2020, the Company entered into an amendment to the 12th Floor Lease wherein the Company leased an additional 7,245 square feet of space on the 12th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12th Floor Lease Amendment”). The 12th Floor Lease Amendment expires in February 2026.
The following table summarizes our contractual obligations related our 12th Floor Lease and the 12th Floor Lease Amendment at December 31, 2021 and the effect such obligations are expected to have on our liquidity and cash flow in future periods:
Payments due by Period
Less Than More Than
Total 1 year 1-3 years 3-5 years 5 years
Operating lease commitments $ 1,572 $ 363 $ 753 $ 456 $ —
For additional details, see “Note 10 to Financial Statements – Leases.”
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2021 or 2020, as defined under SEC rules.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. As of December 31, 2021, we had $232,968 cash and cash equivalents. Our cash equivalents are primarily held in U.S. Government money market funds. We do not participate in any foreign currency hedging activities and we do not have any other derivative financial instruments. We did not recognize any significant exchange rate losses during the years ended December 31, 2021 and 2020, respectively.
We do not believe that our cash and cash equivalents have significant risk of default or illiquidity. While we believe our cash and cash equivalents does not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash at one or more financial institutions that are in excess of federally insured limits.
Capital Market Risk. We currently have no product revenues and depend on funds raised through other sources. Our sources of funding include future debt or equity offerings. Our ability to raise funds in this manner depends upon, among other things, capital market forces affecting our stock price, and on the state of the capital markets generally.
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Item 8. Financial Statements and Supplementary Data
The financial statements required pursuant to this item are included in Item 15 of this report and the related reports of our independent auditor and our former independent auditor are presented beginning on page F-1 and are incorporated under this Item by reference. Our independent auditor for the year ended December 31, 2021 is Ernst & Young LLP (PCAOB ID: 42), located in Stamford, Connecticut, USA and our independent auditor for the year ended December 31, 2020 was BDO USA, LLP (PCAOB ID: 243), located in Stamford, CT, USA.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The information required by this Item was previously provided in and is hereby incorporated under this Item by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 15, 2021.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are 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 recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures 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 the company’s management, including its 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, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Controls Over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2021, our internal control over financial reporting was effective.
Attestation Report of the Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
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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 to the information that will be contained in our proxy statement related to our annual meeting of stockholders to be held in 2022 (the “2022 Annual Meeting of Stockholders”), which we intend to file with the SEC within 120 days of the year ended December 31, 2021.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2021.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2022 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2021.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Reports of Independent Registered Public Accounting Firm F-2
Statements of Operations for the Years Ended December 31, 2021 and 2020 F-4
Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-6
Notes to Financial Statements F-7
(2) Financial Statement Schedules:
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.
(3) Exhibits.
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21.1 Subsidiaries of BioXcel Therapeutics, Inc. *
23.1 Consent of Ernst & Young LLP *
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tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document *
† Indicates a management contract or any compensatory plan, contract or arrangement.
˄ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
# Confidential treatment has been granted for portions omitted from this exhibit and those portions have been separately filed with the Securities and Exchange Commission.
* Filed herewith.
** Furnished herewith.
Item 16. Form 10-K Summary
Not applicable
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BioXcel Therapeutics, Inc.
/s/ Vimal Mehta
Vimal Mehta
Chief Executive Officer
(Principal Executive Officer)
/s/ Richard Steinhart
Richard Steinhart, Chief Financial Officer
(Principal Financial Officer)
Signature Title Date
/s/ JUNE BRAYJune Bray Director March 10, 2022
/s/ SANDEEP LAUMASSandeep Laumas, M.D. Director March 10, 2022
/s/ KRISHNAN NANDABALANKrishnan Nandabalan, Ph.D. Director March 10, 2022
/s/ MICHAL VOTRUBAMichal Votruba Director March 10, 2022
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of BioXcel Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of BioXcel Therapeutics, Inc. (the Company) as of December 31, 2021, the related statements of operations and stockholders' equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
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 audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
Stamford, Connecticut
March 10, 2022
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
BioXcel Therapeutics, Inc.
New Haven, CT
Opinion on the Financial Statements
We have audited the accompanying balance sheet of BioXcel Therapeutics, Inc. (the “Company”) as of December 31, 2020, the related statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
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 Public Company Accounting Oversight Board (United States) (“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 the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ BDO USA, LLP
We served as the Company's auditor from 2017 to 2021.
Stamford, Connecticut
March 12, 2021
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BIOXCEL THERAPEUTICS, INC.
BALANCE SHEETS
(amounts in thousands, except per share amounts)
December 31, December 31,
ASSETS
Current assets
Other current assets 956 984
Property and equipment, net 1,294 1,273
Operating lease right-of-use assets 1,247 1,511
Other assets 86 87
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Due to related party 204 157
Other current liabilities 293 237
Long-term portion of operating lease liabilities 1,105 1,398
Commitments and contingencies (Note 11)
Stockholders' equity
Total liabilities and stockholders' equity $ 239,439 $ 219,936
The accompanying notes are an integral part of these financial statements.
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BIOXCEL THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
Year Ended December 31,
Operating expenses
Other income (expense)
Interest income 44 155
Interest expense (40) (27)
Net loss and comprehensive loss $ (106,931) $ (82,169)
Weighted average shares outstanding - basic and diluted 26,373 21,683
The accompanying notes are an integral part of these financial statements.
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BIOXCEL THERAPEUTICS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(amounts in thousands)
Additional
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Total
Stock-based compensation — — 14,611 — 14,611
Exercise of stock options 330 — 598 — 598
Stock-based compensation — — 19,455 — 19,455
Exercise of stock options 284 1 1,453 — 1,454
The accompanying notes are an integral part of these financial statements.
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BIOXCEL THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash used in operating activities
Depreciation and amortization 297 188
Loss on disposal of equipment 46 —
Changes in operating assets and liabilities:
Prepaid expenses and other assets 103 (2,301)
Operating lease right of use assets 264 288
Accounts payable, accrued expenses, and other liabilities 4,850 3,197
Operating lease liabilities (237) (164)
Net cash used in operating activities (82,153) (66,350)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (445) (316)
Net cash used in investing activities (445) (316)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase and cancellation of shares from BioXcel LLC — (9,024)
Exercise of stock options 1,454 598
Net cash provided by financing activities 102,447 247,359
Net increase in cash and cash equivalents 19,849 180,693
Cash and cash equivalents, beginning of the period 213,119 32,426
Cash and cash equivalents, end of the period $ 232,968 $ 213,119
Supplemental cash flow information:
Interest paid 40 27
The accompanying notes are an integral part of these financial statements.
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BIOXCEL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. Nature of the Business
BioXcel Therapeutics, Inc. (“BTI”) is a clinical stage biopharmaceutical company focused on drug development that utilizes artificial intelligence to identify improved therapies in neuroscience and immuno-oncology. BTI's drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. BTI's two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation and opioid withdrawal symptoms, and BXCL701, an orally administered, systemic innate immune activator for the treatment of aggressive forms of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.
As used in these financial statements, unless otherwise specified or the context otherwise requires, the terms the “Company” or “BTI” refer to BioXcel Therapeutics, Inc., and “BioXcel, LLC ” refer to BioXcel LLC and, its predecessor, BioXcel Corporation.
The Company was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is in New Haven, Connecticut.
Certain reclassifications have been made to the prior year financial information to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.
Impact of COVID-19 Pandemic
During the first quarter ended March 31, 2020, and continuing through December 31, 2021, the novel coronavirus disease, or COVID-19, was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe. The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.
To date we have taken steps in line with guidance from the U.S. Centers for Disease Control and Prevention (“CDC”) and the State of Connecticut to protect the health and safety of our employees and the community. In particular, we implemented a work-from-home policy for all employees and have restricted on-site activities to certain chemical, manufacturing and control (“CMC”) and clinical trial activities. We continue to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the operations of our business. Beginning late in the second quarter of 2020, we began to slowly bring our staff, in very limited numbers, back to our office. This modified return-to-work approach is continuing into 2022. We have taken steps to protect our workforce and have instituted strict work rules to protect our employees.
We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic. We remain committed to our clinical programs and development plans. Other than Phase 2 clinical trial evaluating BXCL501 in patients with delirium through December 31, 2021, we have not experienced any significant delays to our ongoing or planned clinical trials, except for challenges in accessing elderly care facilities and ICU settings; however, this could rapidly change.
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Note 2. Basis of Presentation
The Company’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”).
The Company believes that its existing cash and cash equivalents will be sufficient to cover its cash flow requirements for at least the next twelve months from the issuance of these financial statements. However, the Company’s future requirements may change and will depend on numerous factors.
Note 3. Summary of Significant Accounting Policies
Use of Estimates
The Company’s financial statements are prepared in accordance with GAAP. The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in its financial statements and the accompanying notes. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2021, and 2020, cash equivalents were comprised primarily of money market funds. Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts. We believe we mitigate such risk by investing in or through major financial institutions.
Property and Equipment
Property and equipment are recorded at cost and depreciated and amortized over the shorter of their remaining lease term or their estimated useful life on a straight-line basis as follows:
Equipment 3-5 years
Furniture 7 years
Leasehold improvements Lesser of life of improvement or lease term
Expenditures for maintenance and repairs which do not improve or extend the useful lives of respective assets are expensed as incurred. When assets are sold or retired, the related cost and accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included within general and administrative expenses in net loss from operations in the statement of operations.
The Company follows the guidance provided by FASB ASC Topic 360-10, Property, Plant, and Equipment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated. Impairment charges are recognized at the amount by which the carrying amount of an asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and the long-term portion of operating lease liabilities in our balance sheet.
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ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our lease did not provide an implicit rate, we used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any prepaid lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Renewal options were not included in our calculation of the related asset and liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options. The Company’s 2017 Equity Incentive Plan became effective in August 2017. The Company’s 2020 Incentive Award Plan (“2020 Plan”) became effective in May 2020. Following the effective date of the Company's 2020 Stock Plan, the Company ceased granting awards under the 2017 Plan, however the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.
The Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period using the accelerated attribution method. The estimated fair value of stock option awards was determined using the Black-Scholes option pricing model on the date of grant. Prior to the IPO, significant judgment and estimates were used to estimate the fair value of these awards prior to the IPO. Stock awards granted by the Company subsequent to the IPO are valued using market prices at the date of grant.
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Black-Scholes option-pricing model was used as its method of determining fair value. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the award is recognized as an expense in the statement of operations over the requisite service period using the accelerated attribution method. The Company has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.
Research and Development Costs
Research and development expenses include wages, benefits, facilities, supplies, external services, clinical study and manufacturing costs and other expenses that are directly related to the Company’s research and development activities. At the end of the reporting period, the Company compares payments made to third party service providers to the estimated progress toward completion of the research or development objectives. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs. Such estimates are subject to change as additional information becomes available. The Company expenses research and development costs as incurred.
Expenses Accrued Under Contractual Arrangements
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.
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We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period, which is based on an established protocol specific to each clinical trial. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.
Patent Costs
Costs related to filing and pursuing patent applications are expensed as incurred as general and administrative costs as recoverability of such expenditures is uncertain.
Fair Value of Financial Instruments
The Company applies the provisions of ASC 820, “Fair Value Measurements and Disclosures” for financial assets and liabilities measured on a recurring basis which requires disclosure that establishes a framework for measuring fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources, or observable inputs, and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances, or unobservable inputs. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). ASC 820 requires that fair value measurements be classified and disclosed in one of three categories:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.
Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk in its assessment of fair value.
The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments.
As of December 31, 2021, and December 31, 2020, the Company had $232,968 and $213,119, respectively, in cash and U.S. government money market accounts (included in cash and cash equivalents) which was valued based on Level
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1 inputs. There were no transfers between levels within the hierarchy during the year ended December 31, 2021 and December 31, 2020.
Earnings (Loss) per Share
Basic earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, “Earnings Per Share,” by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock options and warrants. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. Securities that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive.
Segment Information
The Company operates in a single segment. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. To date, our chief operating decision maker has made such decisions and assessed performance at the company level as one segment.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which amends the existing guidance relating to the accounting for income taxes. ASU No. 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020. The Company adopted ASU No. 2019-12 effective January 1, 2021. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. We adopted this standard effective January 1, 2020 on a prospective basis. ASU No. 2018-15 requires that certain implementation costs for cloud computing arrangements are capitalized and amortized over the term of associated hosted cloud computing arrangement service. ASU No. 2018-15 also provides classification guidance on these implementation costs as well as additional quantitative and qualitative disclosures. The adoption of ASU No. 2018-15 did not have an effect on the Company’s financial statements.
Accounting Pronouncements effective in future periods
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU No. 2018-19, ASU No. 2019-04 and No. ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 was to be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), andLeases (Topic 842) Effective Dates, which deferred the effective dates for the Company, until fiscal year 2023. The Company does not expect that the adoption of ASU No. 2016-13 will have a material impact on its financial statements.
Note 4. Financing Activities
In June 2021, the Company sold in a registered offering 3,155 shares of its common stock at a public offering price of $31.70 per share. The Company received proceeds of $96,937, net of issuance costs of $3,042.
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In May 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company could offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having an aggregate offering price of up to $100,000 (the “Shares”), from time to time, through an “at the marketing offering” program under which Jefferies will act as sale agent. The Company sold 124 shares under the Sale Agreement in June 2021. As of December 31, 2021, the Company had received proceeds of $4,056, net of issuance costs of $500.
In July 2020, the Company sold in a registered offering 4,000 shares of its common stock at a public offering price of $50.00. The Company received proceeds of approximately $186,974, net of issuance costs of $13,026. Under the terms of the Underwriting Agreement entered into by the Company in connection with the July 2020 offering, certain stockholders of the Company granted the underwriters an option exercisable for thirty days to purchase up to an additional 600 shares of common stock at the public offering price less underwriting discounts and commissions, which was not exercised. The Company intends to use the net proceeds of the offering to fund ongoing clinical trials, commercialization preparation and for general corporate purposes.
In February 2020, the Company sold in a registered offering 2,300 shares of its common stock at a public offering price of $32.00 per share. The Company received proceeds of $68,811, net of issuance costs of $4,789. The Company used $9,024 of the proceeds to purchase and cancel 300 shares of common stock from BioXcel LLC.
Note 5. Transactions with BioXcel LLC
The Company entered into a Separation and Shared Services Agreement with BioXcel LLC that took effect on June 30, 2017, as amended and restated, or the Services Agreement, pursuit to which services provided by BioXcel LLC through its subsidiaries in India and the United States will continue indefinitely, as agreed upon by the parties. These services are primarily for drug discovery, chemical, manufacturing and controls cost, and administrative support.
Service charges recorded under this agreement for the year ended December 31, 2021 and 2020 were comprised as follows:
Year Ended December 31,
Research and development $ 1,184 $ 1,180
General and administrative 218 82
As of December 31, 2021 and 2020, $204 and $157 related to these service charges is included in due to related parties in the Company’s balance sheet, respectively.
Under the Services Agreement, the Company has an option, exercisable until March 12, 2023, to enter into a collaborative services agreement with BioXcel LLC pursuant to which BioXcel LLC shall perform product identification and related services for us utilizing EvolverAI. The parties are obligated to negotiate the collaborative services agreement in good faith and to incorporate reasonable market-based terms, including consideration for BioXcel LLC reflecting a low, single-digit royalty on net sales and reasonable development and commercialization milestone payments, provided that (i) development milestones shall not exceed $10 million in the aggregate and not be payable prior to proof of concept in humans and (ii) commercialization milestones shall be based on reaching annual net sales levels, be limited to 3% of the applicable net sales level, and not exceed $30 million in the aggregate. BioXcel LLC shall continue to make such product identification and related services available to us through at least September 30, 2024. As of December 31, 2021, this option has not been exercised.
The Company paid $9,024 in February 2020 for the purchase and subsequent cancellation of 300 shares owned by BioXcel LLC.
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Note 6. Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, “Earnings Per Share,” by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock options. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. Securities that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive. The calculations of basic and diluted net loss per share are as follows (in thousands, except per share amounts):
Year Ended
December 31,
Weighted average share, in thousands (denominator) 26,373 21,683
Basic and diluted net loss per share $ (4.05) $ (3.79)
Potentially dilutive securities outstanding consists solely of stock options. The Company had options outstanding to purchase 4,000 and 3,798 shares of common stock as of December 31, 2021 and 2020, respectively.
Note 7. Property and Equipment, net
A summary of property and equipment is as follows:
December 31, December 31,
Computers and related equipment $ 167 $ 260
Leasehold improvements 1,133 650
Work in process 24 356
Accumulated depreciation (602) (362)
Depreciation expense was $297 and $188 for the years ended December 31, 2021 and 2020, respectively.
Note 8. Accrued Expenses