BTAI US Equity☆

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 our consolidated 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

BioXcel Therapeutics, Inc. (“BTI” or the “Company”) is a biopharmaceutical company utilizing artificial intelligence (“AI”) approaches to develop transformative medicines in neuroscience and immuno-oncology. We are focused on utilizing cutting-edge technology and innovative research to develop high-value therapeutics aimed at transforming patients’ lives. We employ a proprietary AI platform to reduce therapeutic development costs and potentially accelerate development timelines. Our approach leverages existing approved drugs and/or clinically evaluated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indications. We believe this differentiated approach has the potential to reduce the expense and time associated with drug development in diseases with substantial unmet medical needs.

On April 6, 2022, we announced that the United States (“U.S.”) Food and Drug Administration (“FDA”) approved IGALMI (dexmedetomidine or “Dex”) sublingual film for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder in adults. IGALMI is approved to be self-administrated by patients under the supervision of a health care provider. We deployed the first phase of our sales team for high priority targets in May 2022. Furthermore, on July 6, 2022, we announced that IGALMI was commercially available in doses of 120 and 180 microgram (“mcg”) through the Company’s third-party logistics provider and was available for order through wholesalers.

Our most advanced clinical development program is BXCL501, an investigational proprietary, orally dissolving film formulation of Dex for the treatment of agitation associated with psychiatric and neurological disorders.

We are conducting clinical trials for the at-home use of BXCL501 for agitation associated with bipolar disorders and schizophrenia. We also continue to conduct clinical trials evaluating BXCL501 for the acute treatment of agitation in Alzheimer’s disease patients in residential care facilities and nursing homes and for adjunctive treatment of patients with Major Depressive Disorder (“MDD”).

Our advanced immuno-oncology asset, BXCL701, is an investigational, oral innate immune activator currently being developed as a potential therapy for the treatment of aggressive forms of prostate cancer, pancreatic cancer and other solid and liquid tumors.

On April 19, 2022, we announced the formation of a wholly-owned subsidiary, OnkosXcel Therapeutics, LLC (“OnkosXcel”), to develop potentially transformative medicines in immuno-oncology. OnkosXcel is focused on the sustained expansion and optimization of our immuno-oncology franchise, while providing maximum strategic and financial flexibility. OnkosXcel plans to progress the development of BXCL701 and BXCL702. To support their development, we may pursue third-party investments in, or other strategic options for, OnkosXcel.

We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic and the spread of its variants. To date, we have not experienced any significant delays in any of our ongoing or planned clinical trials, except for occasional COVID-19 related disruptions to our TRANQUILITY II and PLACIDITY trials. However, this could change rapidly.

IGALMI Commercial Progress

Since the commercial launch of IGALMI in July 2022, our commercial progress has yielded more than 65 formulary wins. Additionally, more than 600 hospital pharmacy and therapeutics (“P&T”) committees are scheduled to review and

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vote on IGALMI inclusion in their formularies over the next several months. In addition, nearly 50% of target beds are now under group purchasing organization (“GPO”) contracts as of February 28, 2023. We are in active discussions with other leading GPOs. This has been primarily accomplished with our initial 26-person institutional sales force since our trade launch in July 2022.

We expanded our institutional sales force to 70 representatives in December 2022 to cover over 1,700 target hospitals as of February 28, 2023. During the fourth quarter of 2022, our Corporate Account Director team was focused on 59 high-volume, high-control integrated delivery network (“IDN”) accounts. Formulary voting is currently scheduled for approximately 70,000 (25%) of our target IDN beds, with approximately 7,000 (2%) now approved.

We believe the value proposition for IGALMI will continue to evolve as we learn from market response. Staff shortages in the emergency departments (“EDs”) of hospitals, complicated by the potential for staff injuries due to agitated patients, are becoming increasingly concerning to hospital administration. Due to limited agitation treatment options in the ED, intramuscular injection is often used. This approach can be both confrontational and coercive to agitated patients, often making their symptoms worse. Moreover, these patients may occupy ED beds for extended periods due to unresponsive sedation, reducing throughput and increasing costs. These conditions continue to reinforce the need for a drug with IGALMI’s profile.

Our marketing efforts continue to drive awareness through an extensive convention presence, peer influence programs, and digital marketing campaigns. As of December 31, 2022, our peer-led IGALMI speaker programs have educated over 1,000 health care providers, while we have had over 350,000 web sessions on our branded health care provider website and additional touchpoints through other digital marketing efforts. With our sales team expansion and as we begin to garner additional P&T formulary adoption, we plan extensive digital and peer to peer marketing efforts in the first half of 2023 to continue to raise awareness, reinforce key messages and drive additional demand. In addition, we have planned promotional presence at leading national and regional conferences in 2023.

If IGALMI is approved outside the U.S., we would consider launching the product through collaborations with third parties.

Our continued commercialization efforts for IGALMI are designed to build the foundation to launch additional potential follow-on indications, if any, paving the way for our expanding neuroscience therapeutics business.

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Our Clinical Programs

The following is a summary of the status of our major clinical development programs as of the date of this Annual Report on Form 10-K:

For additional information regarding our pipeline candidates, see Part I, Item 1, “Business” in this Annual Report on Form 10-K.

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Basis of Presentation

The Company’s consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

Components of Our Results of Operations

Product Revenues, Net

Revenues relate to sales of IGALMI from early product trials and reflects limited market access since commercial launch in July 2022. The revenues are net of rebates, chargebacks, discounts and other adjustments. During the fourth quarter of 2022, we began contracting directly with intermediaries such as GPOs.

Operating Costs and Expenses

Cost of Goods Sold

Cost of goods sold primarily relates to the costs of producing, packaging and delivering our product to customers.

Research and Development

Our research and development expenses reflect costs incurred for the research and development of our clinical and preclinical product candidates, which includes payments to BioXcel LLC. Research and development expenses 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 and sites that conduct our non-clinical studies and clinical trials, costs of outside consultants engaged in research and development activities, including their fees, non-cash stock-based compensation and travel expenses, the cost of acquiring, developing and manufacturing preclinical and clinical trial materials and lab supplies, and depreciation and other expenses.

We expense research and development costs as incurred.

Our research and development costs by program for the years ended December 31, 2022 and 2021 were as follows:

​ ​ ​ ​ ​ ​

​ Year ended

​ December 31,

Direct external costs ​ ​ ​ ​ ​

Other research and development programs 2,687 ​ ​ 1,587

Indirect costs and overhead ​ 4,213 ​ ​ 3,063

Research and development tax credit ​ (167) ​ ​ (362)

Total research and development expenses $ 91,239 ​ $ 52,708

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Selling, General and Administrative

Selling, general and administrative expenses primarily consist of salaries, benefits and non-cash stock-based compensation for our sales, executive and administrative personnel. Selling, general and administrative expenses also include legal expenses to pursue patent protection of our intellectual property, professional fees for audit and tax services and insurance charges.

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We expect that our selling, general and administrative expenses will increase as we expand our clinical programs. We also expect increased selling, general and administrative costs resulting from our clinical trials, the continued commercialization of IGALMI and potential commercialization of our product candidates. We believe that these increases will likely include increased costs for liability insurance, hiring additional personnel to support future market research and current and future product commercialization efforts. In addition, we may also experience increased fees for outside consultants, attorneys, and accountants. We may also incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures and similar requirements applicable to public companies.

Other Expense (Income)

Other expense (income) primarily consists of interest costs associated with the strategic financing facility the Company entered into in April 2022, changes in fair value of derivative financial instruments, and interest income earned on cash and cash equivalents that were comprised primarily of money market funds. We expect that interest expense will increase in the future, as we meet additional milestones and draw down additional funds under the strategic financing facility.

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 consolidated financial statements included in this Annual Report on Form 10-K.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

Product Revenues, Net

Product revenues, net for the year ended December 31, 2022, were $375, comprised of sales of IGALMI, subsequent to commercial launch in July 2022. Sales to date resulted from early product trials and reflect limited market access. There were no revenues in 2021.

Cost of Goods Sold

Cost of goods sold for the year ended December 31, 2022, were $20, which primarily related to the costs to produce, package and deliver IGALMI to customers. There were no cost of goods sold in 2021.

Research and Development Expense

Research and development expenses for the years ended December 31, 2022 and 2021 were as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended ​ ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Research and development tax credit ​ ​ (167) ​ ​ (362) ​ ​ 195 ​ ​ 54 %

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The increase of $38,531 for the year ended December 31, 2022, relative to the same period in 2021 is primarily attributable to:

● Increased professional fees due to required toxicology testing for IGALMI.

These increases were offset by a decrease in non-cash stock-based compensation, which was the result of lower grant date fair values for awards due to lower trading prices of the Company’s common stock.

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 credit decreased in the year ended December 31, 2022 due to lower qualified spending in 2022 relative to 2021.

Following IGALMI’s approval by the FDA, we capitalize costs related to commercial production of IGALMI as inventory and expense those CMC costs related to clinical trials.

Selling, General and Administrative Expense

Selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended ​ ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-cash stock-based compensation ​ 12,779 ​ ​ 12,798 ​ (19) ​ ​ (0) %

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The increase of $14,534 for the year ended December 31, 2022, relative to the same period in 2021 is primarily attributable to:

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These increases were offset by lower commercial and marketing costs due to reduced spending for market research and campaign development costs in 2022; we incurred higher market research and campaign development costs in 2021 in anticipation of the potential commercial launch of IGALMI.

Other Expense (Income)

Interest expense increased for 2022 relative to 2021 primarily due to borrowings under the OFA Facilities (defined subsequently herein) the Company entered into in April 2022. The expense was partially offset by interest income earned on cash and cash equivalents that were held primarily in short-term money market funds. Other expense, net is primarily associated with changes in fair value of derivative financial instruments for the period.

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. For a discussion of inflationary risks to our future revenues under the Inflation Reduction Act, see “Health care reform measures could hinder or prevent our product candidates’ commercial success.” in Part I, Item 1A., “Risk Factors” elsewhere in this Annual Report on Form 10-K.

Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents of $193,725, working capital of $169,970 and stockholders’ equity of $76,775. Net cash used in operating activities was $135,341 and $82,153 for the years ended December 31, 2022 and 2021, respectively. We incurred losses of approximately $165,757 and $106,931 for the years ended December 31, 2022 and 2021, respectively. We have generated limited revenues to date, and we have not yet achieved profitability. We expect that our research and development and selling, 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 current cash and cash equivalents 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, third-party investments in or other strategic options for OnkosXcel, 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 during when there is market uncertainty or an economic downturn. If we are unable to secure adequate additional funding as and when needed on acceptable or commercially reasonable terms, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates. In addition, there are various macro-economic trends affecting the financing markets whose impact on our liquidity and future funding requirements are uncertain as of the filing date of this Annual Report on Form 10-K. We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts. See “Risks Related to Financial Position and Need for Additional Capital; We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.” in Part I. Item 1A., “Risk Factors” elsewhere in this Annual Report on Form 10-K.

Sources of Liquidity

We have focused our efforts on raising capital and building the products in our pipeline, and only recently on launching sales for our first FDA approved product IGALMI. Since our inception, our operations have been financed primarily from proceeds from the sale of equity securities, including our initial public offering, private placements of our common stock, registered offerings of our common stock, an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”), and borrowings under strategic financing arrangements (as described below). We have not

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yet established an ongoing source of revenue sufficient to cover our operating costs and will need to do so in future periods.

In April 2022, we entered into two strategic financing agreements; a Credit Agreement and Guaranty (the “Credit Agreement”) by and among the Company, as the borrower, certain subsidiaries of the Company from time to time party thereto as subsidiary guarantors, the lenders party thereto (the “Lenders”), and Oaktree Fund Administration LLC (“OFA”) as administrative agent, and a Revenue Interest Financing Agreement (the “RIFA”; and together with the Credit Agreement, the “OFA Facilities”) by and among the Company, the purchasers party thereto (the “Purchasers”) and OFA as administrative agent. Pursuant to the Credit Agreement, the Lenders agreed to loan us up to $135,000 in senior secured term loans. On April 28, 2022, we borrowed the first tranche of $70,000 of loans. The remaining two tranches of the commitments under the Credit Agreement may be borrowed at our option prior to December 31, 2024 as follows:

The foregoing additional amounts were not eligible to be borrowed as of December 31, 2022.

Pursuant to the RIFA, the Purchasers agreed to provide us with up to $120,000 in financing for our near-term commercial activities of IGALMI, development and commercialization of BXCL501 and other general corporate purposes. On July 8, 2022, we drew down the first tranche of $30,000 under the RIFA. The remaining commitments under the RIFA may be drawn at our option prior to December 31, 2024, as follows:

The foregoing additional amounts were not eligible to be borrowed as of December 31, 2022.

In connection with the Credit Agreement, we granted to the Lenders certain warrants to purchase up to 278 shares of our common stock, rights to purchase up to $5,000 of our common stock and warrants to purchase up to 175 individual ownership units (i.e., not in thousands) in OnkosXcel.

See Note 8, Debt and Credit Facilities in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information relating to the Credit Agreement and RIFA, including applicable interest rates, payment obligations and certain restrictive and financial covenants thereunder. As of December 31, 2022, we were in compliance with all restrictive and financial covenants under the Credit Agreement and the RIFA.

In June 2021, we sold 3,155 shares of our common stock in a registered offering at a public offering price of $31.70 per share. We received proceeds of $96,937, net of issuance costs of $3,042.

In May 2021, we entered into the Sale Agreement with Jefferies pursuant to which we can offer and sell shares of our common stock, having an aggregate offering price of up to $100,000, from time to time, through an “at the market offering” program under which Jefferies will act as sale agent. We sold 124 shares under the Sale Agreement in June 2021 for proceeds of $4,056, net of issuance costs of $500. We did not sell any shares, and no proceeds were received under the Sale Agreement during the year ended December 31, 2022.

As of March 15, 2023, the Company sold 756 shares under the Sale Agreement with Jefferies in the first quarter of 2023 for net proceeds of $23,917, net of issuance costs of $740.

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Cash Flows

​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

Cash (used in) provided by: ​ ​ ​ ​ ​ ​

Investing activities ​ $ (139) ​ $ (445)

​

Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $135,341 and was primarily attributable to our net loss of $165,757, a $1,985 increase in inventory of IGALMI and a $3,905 increase in prepaid expenses, other current assets and other assets, partially offset by $17,337 in non-cash stock-based compensation, a $4,611 increase in accrued and payment in kind interest, and $13,030 increase in accounts payable, accrued expenses and other current liabilities.

Net 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 $103 decrease 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.

Investing Activities

Cash used in investing activities for the year ended December 31, 2022, was $139 and was primarily attributable to the purchase of equipment and leasehold improvements.

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.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022, was $96,237 and was primarily attributable to $98,600 of proceeds received from the OFA Facilities, net of $2,646 of debt issuance costs.

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, $4,056 in net proceeds from the sale of common stock under the Sale Agreement with Jefferies and proceeds of $1,454 from the exercise of stock options.

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 commercialize IGALMI and as we expand our clinical trials of and seek marketing approval for BXCL501, BXCL502, BXCL701 and BXCL702, while pursuing development of additional product candidates. We expect to continue to incur net losses in the near term. 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.

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 our product candidates;

● conduct additional research and development with our product candidates;

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● maintain, expand and protect our intellectual property portfolio;

● hire scientific, clinical, quality control and administrative personnel;

● continue to operate as a public company.

We believe that our existing cash and cash equivalents as of December 31, 2022, 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 consolidated financial statements included in this Annual Report on Form 10-K, including funding our ongoing research and development and commercialization efforts. We expect that we will need to obtain substantial additional funding to fund our ongoing 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, which 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 our 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 our product candidates that we otherwise would seek to develop or commercialize ourselves.

Contractual Obligations and Commitments

In April 2022, the Company signed a commercial supply agreement that requires minimum annual payments for the first three years of the agreement that in aggregate total $10,000 for the three-year period and the minimum commitment for 2023 is $3,000.

In February 2022, we signed a distribution agreement with a third-party to distribute product related to BXCL501 in the U.S. The distributor will be paid defined fees for its services under the agreement, which can be terminated by either party for cause. The distribution agreement can also be terminated by us without cause, subject to payment of agreed termination fees.

BTI leases office space for its corporate headquarters at 555 Long Wharf Drive, New Haven, Connecticut (the “HQ Lease”). The HQ Lease expires in February 2026. The Company has an option to renew the HQ Lease for one additional five-year term. Payments under the HQ Lease are fixed. The Company has approximately $1,209 of payments remaining under the HQ Lease. For additional details, see Note 12, Leases in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information relating to the Company’s leases.

In addition, we are obligated to make quarterly interest and royalty payments under our Credit Agreement and RIFA, respectively. For additional details, see Note 8, Debt and Credit Facilities in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information relating to the Company’s debt payment obligations.

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Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with U.S. 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 consolidated 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.

We define critical accounting policies as those that are reflective of significant judgments and uncertainty and which may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting policies are noted below.

Stock Compensation

The Company has granted stock options, restricted stock units and profit units to employees, directors, and consultants, as well as warrants to other third parties. For employee, director and consultant awards, the value of each grant is estimated on the date of grant using a Black-Scholes option-pricing model. The Black-Scholes pricing model incorporates the volatility of the price of BTI’s stock, the risk-free interest rate, the estimated life of the award, the closing market price of the Company’s stock and the exercise price of the award. Management bases the Company’s estimates of stock price volatility on the historical volatility of the Company’s common stock, as well as a peer group of comparable companies. However, these estimates are neither predictive nor indicative of the future performance of the Company’s stock. For purposes of the calculation, management assumed that no dividends would be paid during the life of the stock awards. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management judgment.

Research and Development Expenses

As part of the process of preparing the Company’s consolidated financial statements, BTI’s management is required to estimate prepaid and accrued expenses. This process involves reviewing open contracts, communicating with personnel to identify services that have been performed on behalf of the Company and estimating the level of service performed and the associated cost incurred for the service when BTI has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice BTI monthly for services performed or when contractual milestones are met. BTI management makes estimates of prepaid and/or accrued expenses as of each reporting date in the Company’s consolidated financial statements based on facts and circumstances known to management at that time. BTI periodically confirms the accuracy of its estimates with the service providers and makes adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to contract research organizations (“CROs”) in connection with clinical studies, amounts paid to contract manufacturing organizations, and fees paid to sites in connection with clinical trials.

The Company bases its expenses related to clinical studies on management’s estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trial studies on our behalf. The financial terms of these agreements are subject to an initial negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to vendors exceed the level of services

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provided and result in a prepayment of the clinical expense. 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 certain service fees, BTI management estimates the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from management’s estimate, management will adjust the accrual or prepaid accordingly. Although the Company does not expect management’s estimates to be materially different from amounts actually incurred, management’s 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 BTI reporting amounts that are too high or too low in any particular period.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Foreign Exchange Risk

As of December 31, 2022, we had $193,725 of cash and cash equivalents. Our cash and cash equivalents are primarily held in U.S. Government money market funds. We do not participate in any foreign currency hedging activities and have limited exposure to other derivative financial instruments, primarily resulting from the terms and conditions of the OFA Facilities. We did not recognize any significant exchange rate losses during the years ended December 31, 2022 and 2021, 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 do not contain material market 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 exceed federally insured limits. In the event of a failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we will be able to access uninsured funds in a timely manner or at all.

Interest Rate Risk

The loans under the Credit Agreement bear interest at a fixed annual rate of 10.25%, payable quarterly, and the RIFA is repaid based on a multiple of invested capital. Consequently, we do not have material interest rate exposure due to our indebtedness.

Capital Market Risk

We currently do not have substantial product revenues and depend on funds raised through other sources. One source of funding includes 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.

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 report of our independent auditor are presented beginning on page F-1 and are incorporated under this Item by reference. Our independent auditor for the years ended December 31, 2022 and 2021 was Ernst & Young LLP (PCAOB ID: 42), located in Stamford, Connecticut, USA.

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 Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and

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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 Securities Exchange Act of 1934, as amended (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 rules and forms of the SEC. 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 as of December 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, 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, 2022, 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.”

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, 2022, 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.

INFORMATION ABOUT OUR DIRECTORS & EXECUTIVE OFFICERS

The following information with respect to our Board of Directors (the "Board") and executive officers is presented as of March 15, 2023:

​ ​ ​

Name ​ Age ​ Position at BioXcel ​ Principal Employment

Matthew Wiley ​ 51 ​ Senior Vice President and Chief Commercial Officer ​ Same

​

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 2023 (the “2023 Annual Meeting of Stockholders”), which we intend to file with the SEC within 120 days of the year ended December 31, 2022.

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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 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2022.

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 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2022.

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 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2022.​

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 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2022.​

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this report:

(1) Financial Statements:

Report of Independent Registered Public Accounting Firm (PCAOB ID: 00042) F-1

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-2

Notes to Consolidated Financial Statements F-6

(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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by and between BioXcel LLC and BioXcel Therapeutics, Inc.

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21.1 ​ Subsidiaries of BioXcel Therapeutics, Inc. ​ ​ ​ ​ ​ ​ ​ ​ ​ *

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23.1 ​ Consent of Ernst & Young LLP ​ ​ ​ ​ ​ ​ ​ ​ ​ *

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101.SCH ​ Inline XBRL Taxonomy Extension Schema Document ​ ​ ​ ​ ​ ​ ​ ​ ​ *

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@ 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.

& Annexes, schedules, and certain exhibits have been omitted pursuant to Item 601(a)(5)(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish supplementally a copy of any omitted annex, schedule or exhibit to the SEC upon request.

* Filed herewith.

** Furnished herewith.

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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, Ph.D.

​ Chief Executive Officer

​ (Principal Executive Officer)

​ ​

​ /s/ Richard Steinhart

​ Richard Steinhart

​ Chief Financial Officer

​ (Principal Financial Officer)

​

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Signature Title Date

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/s/ June BrayJune Bray Director March 15, 2023

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/s/ Sandeep LaumasSandeep Laumas, M.D. Director March 15, 2023

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/s/ Michael MillerMichael Miller Director March 15, 2023

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/s/ Krishnan NandabalanKrishnan Nandabalan, Ph.D. Director March 15, 2023

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/s/ Michal VotrubaMichal Votruba ​ Director ​ March 15, 2023

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Report of Independent Registered Public Accounting Firm

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To the Stockholders and the Board of Directors of BioXcel Therapeutics, Inc.

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Opinion on the Financial Statements

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We have audited the accompanying consolidated balance sheets of BioXcel Therapeutics, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended, 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 the years then ended in conformity with U.S. generally accepted accounting principles.

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Basis for Opinion

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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.

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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. 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 audits, 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.

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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.

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/s/ Ernst & Young LLP

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We have served as the Company’s auditor since 2021.

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Stamford, Connecticut

March 15, 2023

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BIOXCEL THERAPEUTICS, INC.

​

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​

​ ​ December 31, ​ December 31,

ASSETS ​ ​

Current assets ​ ​

Accounts receivable, net ​ ​ 248 ​ —

Inventory ​ 1,985 ​ —

Property and equipment, net ​ 1,084 ​ 1,294

Operating lease right-of-use assets ​ ​ 976 ​ ​ 1,247

Other assets ​ ​ 925 ​ ​ 86

​ ​ ​ ​ ​ ​ ​

LIABILITIES AND STOCKHOLDERS' EQUITY ​ ​

Current liabilities ​ ​

Due to related parties ​ 422 ​ 204

Accrued interest ​ ​ 3,175 ​ ​ —

Other current liabilities ​ ​ 404 ​ ​ 293

Long-term portion of operating lease liabilities ​ ​ 786 ​ 1,105

Derivative liabilities ​ ​ 2,343 ​ ​ —

Long-term debt ​ ​ 93,051 ​ ​ —

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Commitments and contingencies (Note 17) ​ ​ ​ ​ ​ ​

Stockholders' equity ​ ​

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Total liabilities and stockholders' equity ​ $ 205,853 ​ $ 239,439

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

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BIOXCEL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share amounts)

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​ ​ Year ended December 31,

​ ​ ​ ​ ​ ​ ​

Revenues ​ ​ ​ ​ ​ ​

Product revenue, net ​ $ 375 ​ $ —

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Operating expenses ​ ​

Cost of goods sold ​ $ 20 ​ $ —

Selling, general and administrative ​ 68,761 ​ 54,227

Other expense (income) ​ ​

Interest income ​ ​ (2,528) ​ ​ (44)

Other expense, net ​ ​ 427 ​ ​ —

Weighted average shares outstanding - basic and diluted ​ 28,015 ​ 26,373

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

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BIOXCEL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ ​

​ ​ Common Stock ​ Paid in ​ Accumulated ​ ​ ​

​ Shares Amount Capital Deficit Total

Stock-based compensation ​ — ​ ​ — ​ ​ 19,455 ​ ​ — ​ ​ 19,455

Exercise of stock options ​ 284 ​ ​ 1 ​ ​ 1,453 ​ ​ — ​ ​ 1,454

Issuance of stock purchase warrants ​ — ​ ​ — ​ ​ 3,245 ​ ​ — ​ ​ 3,245

Stock-based compensation ​ — ​ ​ — ​ ​ 17,337 ​ ​ — ​ ​ 17,337

Exercise of stock options ​ 167 ​ ​ — ​ ​ 283 ​ ​ — ​ ​ 283

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

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BIOXCEL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

OPERATING CASH FLOW ACTIVITIES: ​ ​

Reconciliation of net loss to net cash used in operating activities ​ ​ ​ ​

Accretion of debt discount and amortization of financing costs ​ ​ 860 ​ ​ —

Change in fair value of derivative liabilities ​ ​ 389 ​ ​ —

Payable-in-kind interest on Credit Agreement ​ ​ 807 ​ ​ —

Loss on disposal of equipment ​ 22 ​ 46

Changes in operating assets and liabilities ​ ​ ​ ​

Accounts receivable ​ ​ (248) ​ —

Inventory ​ (1,985) ​ —

Prepaid expenses, other current assets and other assets ​ (3,905) ​ 103

Operating lease right-of-use assets ​ ​ 271 ​ ​ 264

Accrued interest ​ ​ 3,804 ​ ​ —

Operating lease liabilities ​ ​ (293) ​ ​ (237)

Net cash used in operating activities ​ $ (135,341) ​ $ (82,153)

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INVESTING CASH FLOW ACTIVITIES: ​ ​

Purchases of property and equipment ​ $ (139) ​ $ (445)

Net cash used in investing activities ​ $ (139) ​ $ (445)

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FINANCING CASH FLOW ACTIVITIES: ​ ​

Proceeds from long-term debt ​ $ 98,600 ​ $ —

Debt issuance costs ​ ​ (2,646) ​ ​ —

Proceeds from issuance of common stock, net of issuance costs ​ ​ — ​ ​ 100,993

Exercise of stock options ​ ​ 283 ​ ​ 1,454

Net cash provided by financing activities ​ $ 96,237 ​ $ 102,447

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Net (decrease) increase in cash and cash equivalents ​ $ (39,243) ​ $ 19,849

Cash and cash equivalents, beginning of the period ​ 232,968 ​ 213,119

Cash and cash equivalents, end of the period ​ $ 193,725 ​ $ 232,968

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Supplemental cash flow information: ​ ​

Issuance of stock purchase warrants ​ $ 3,245 ​ $ —

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

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BIOXCEL THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except per share amounts and where otherwise noted)

Note 1. Nature of the Business

BioXcel Therapeutics, Inc. (“BTI” or the “Company”) is a biopharmaceutical company utilizing artificial intelligence (“AI”) approaches to develop transformative medicines in neuroscience and immuno-oncology. The Company is focused on utilizing cutting-edge technology and innovative research to develop high-value therapeutics aimed at transforming patients’ lives. BTI employs a unique AI platform to reduce therapeutic development costs and potentially accelerate timelines. The Company’s approach leverages existing approved drugs and/or clinically evaluated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. BTI management believes this differentiated approach has the potential to reduce the expense and time associated with drug development in diseases with substantial unmet medical needs.

As used in these consolidated financial statements, unless otherwise specified or the context otherwise requires, the terms “BioXcel LLC” refers to the Company’s former parent and current significant stockholder, BioXcel LLC and, its predecessor, BioXcel Corporation. “OnkosXcel” refers to BTI’s wholly owned subsidiary for its advanced immuno-oncology assets, OnkosXcel Therapeutics, LLC.

On April 6, 2022, BTI announced that the United States (“U.S.”) Food and Drug Administration (“FDA”) approved IGALMI (dexmedetomidine or “Dex”) sublingual film for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder in adults. IGALMI is approved to be self-administrated by patients under the supervision of a health care provider. The Company deployed the first phase of its sales team for high priority targets in May 2022. Furthermore, on July 6, 2022, BTI announced that IGALMI, was commercially available in doses of 120 and 180 microgram through the Company’s third-party logistics provider and was available for order through wholesalers.

The Company’s most advanced clinical development program is BXCL501, an investigational proprietary, orally dissolving, film formulation of Dex for the treatment of agitation associated with psychiatric and neurological disorders.

BTI continues to conduct clinical trials evaluating BXCL501 for the acute treatment of agitation in Alzheimer’s disease patients, and for adjunctive treatment of patients with Major Depressive Disorder (“MDD”). The Company is also planning clinical trials for the at-home use of BXCL501 for agitation associated with bipolar disorders and schizophrenia.

The Company’s advanced immuno-oncology asset, BXCL701, is 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.

BTI was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is in New Haven, Connecticut.

Impact of COVID-19 Pandemic

The COVID-19 pandemic and responsive measures have significantly impacted, both directly and indirectly, businesses and commerce.

The Company continues to work closely with clinical sites to monitor the potential impact of the evolving COVID-19 pandemic and the spread of its variants. To date, BTI has not experienced any significant delays in any of its ongoing or planned clinical trials, except for occasional COVID-19 related disruptions, such as to its TRANQUILITY II trial. However, this could change rapidly.

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Note 2. Basis of Presentation

The accompanying consolidated financial statements include those of the Company and its subsidiaries after elimination of all intercompany accounts and transactions and have been prepared in conformity with United States (“U.S.”) Generally Accepted Accounting Principles (“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 preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and notes thereto. 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, 2022 and 2021, cash equivalents were comprised primarily of money market funds. Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts. BTI management believes it mitigates such risk by investing in or through major financial institutions.

Accounts Receivable, Net

Accounts receivable arise from sales of IGALMI and represent amounts due from distributors. Payment terms generally range from 30 to 75 days from the date of the sale transaction, and accordingly, do not involve a significant financing component. Receivables from product sales are recorded net of allowances which generally include distribution fees, prompt payment discounts, chargebacks, and credit losses. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimated the current expected credit losses of its accounts receivable by assessing the risk of loss and available relevant information about collectability, 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. Based on its assessment, as of December 31, 2022, the Company determined that an allowance for credit losses was not required.

Concentrations of Credit Risk

The Company sells IGALMI through a drop-ship program under which orders from hospitals and similar health care institutions are processed through wholesalers, but shipments of the product are sent directly to the individual hospitals and similar health care institutions. BTI also contracts directly with intermediaries such as group purchasing organizations (“GPOs”). All trade accounts receivables are due from the distributor that fulfills orders on behalf of the Company.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost of inventory is determined on a first-in, first-out basis.

BTI capitalizes inventory costs associated with the Company’s products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development expense in the Consolidated Statements of Operations.

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The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, will be recorded within cost of goods sold in the Consolidated Statements of Operations. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected, write-downs of inventory may be required.

Property and Equipment

Property and equipment are recorded at cost and depreciated 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 the 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 selling, general and administrative expenses in the Consolidated Statements of Operations.

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 from its use and disposition. 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

The Company determines 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 the Consolidated Balance Sheets.

ROU assets represent BTI’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when readily determinable. As BTI’s leases do not provide an implicit rate, it used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any prepaid lease payments made and excludes lease incentives. The Company’s leases may include options to extend the lease; such options are included in determining the lease term when it is reasonably certain that BTI will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

Debt and Detachable Warrants

Detachable warrants are evaluated for classification as either equity instruments, derivative liabilities, or liabilities depending on the specific terms of the warrant agreement. In circumstances in which debt is issued with equity-classified warrants, the proceeds from the issuance of debt are first allocated to the debt and the warrants at their estimated fair values. The portion of the proceeds allocated to the warrants are accounted for as paid-in capital and a debt discount. The remaining proceeds, as further reduced by discounts created by the bifurcation of any embedded derivatives, are allocated to the debt. Detachable warrants classified as derivative liabilities are accounted for as indicated under “Derivative Assets and Liabilities” section of this Note and as a debt discount. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount from the allocation of proceeds to interest expense using the effective interest method over the expected term of the debt instrument. The Company considers

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whether there are any embedded features in debt instruments that require bifurcation and separately accounts for them as derivative financial instruments.

The Company entered into financing arrangements, the terms of which involve significant assumptions and estimates, including future net product sales, in determining interest expense, amortization period of the debt discount, as well as the classification between current and long-term portions. In estimating future net product sales, the Company assesses prevailing market conditions using various external market data against the Company’s anticipated sales and planned commercial activities. Consequently, the Company imputes interest on the carrying value of the debt and records interest expense using an imputed effective interest rate. The Company reassesses the expected payments during each reporting period and accounts for any changes through an adjustment to the effective interest rate on a prospective basis, with a corresponding impact to the classification of the Company’s current and long-term portions of the debt.

Derivative Assets and Liabilities

Derivative assets and liabilities are recorded on the Company`s Consolidated Balance Sheets at their fair value on the date of issuance and are revalued on each balance sheet date until such instruments are settled or expire, with changes in the fair value between reporting periods recorded as other income or expense within other expense, net in the Consolidated Statements of Operations.

The Company does not use derivative instruments for speculative purposes or to hedge exposures to cash-flow or market risks. Certain financing facilities entered into by the Company include freestanding financial instruments and/or embedded features that require separate accounting as derivative assets and/or liabilities.

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.

Revenue Recognition

The Company’s revenues consist of product sales of IGALMI.

BTI recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition, BTI management 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, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be accounted for as a contract modification or as a continuation of the contract for accounting purposes.

The Company assesses whether the goods or services promised within each contract are distinct to identify those that are performance obligations. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such goods and services are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

The Company allocates the transaction price (the amount of consideration it expects to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. The Company’s estimate of the transaction price for each contract includes all variable consideration to which the Company expects to be entitled.

BTI distributes IGALMI in the U.S. through arrangements with a distributor, wholesalers, and GPOs. The distributor and wholesalers help process and fulfill orders from hospitals on the Company’s behalf. The Company believes the hospitals are its customers.

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The Company recognizes product revenues, net of consideration payable to customers, as well as variable consideration related to certain allowances and accruals that are determined using either the expected value or most likely amount method, depending on the type of the variable consideration, in its consolidated financial statements at the point in time when control transfers to the customer, which is typically when the product has been delivered to the customer’s location. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s only performance obligation identified for IGALMI is to deliver the quantity of product ordered to the location specified by the customer’s order. The Company records shipping and handling costs associated with delivery of product to its customers within selling, general and administrative expenses on its Consolidated Statements of Operations. Under the Company’s current product sales arrangements, BTI does not have contract assets (unbilled receivables), as it generally invoices its customer at the time of revenue recognition, and contract liabilities, as the Company generally does not receive prepayments from its customers prior to product delivery.

BTI sells IGALMI at wholesale acquisition cost and calculates product revenue net of variable consideration and consideration payable to third parties associated with distribution of product. The Company records reserves, based on contractual terms, for the following components of consideration related to product sold during the reporting period. Calculating these amounts involves estimates and judgments, and the Company reviews these estimates quarterly and records any material adjustments in the period they are identified, which affects net product revenue and earnings in the period such variances occur.

Trade Discounts and Allowances

The Company provides the distributor and wholesalers with discounts for prompt payment and pays fees to the distributor, wholesalers and GPOs related to distribution of the product. BTI expects the relevant third parties to earn these discounts and fees, and therefore it deducts such amounts from gross product revenue and accounts receivable at the time it recognizes the related revenue.

Government Rebates

IGALMI is eligible for purchase by, or qualifies for reimbursement from, Medicaid and other U.S. government programs that are eligible for rebates on the price they pay for the product. To determine the appropriate amount to reserve for these rebates, BTI applies the applicable government discount to these sales, and estimates the portion of total rebates that it anticipates will be claimed. The Company deducts certain government rebates from gross product revenue and accounts receivable at the time it recognizes the related revenue; other government rebates are recognized as an accrued liability at the time BTI recognizes the related revenue.

Chargebacks

BTI provides product discounts to hospitals associated with certain GPOs. The Company estimates the chargebacks that it expects to be obligated to provide based upon the terms of the applicable arrangements. BTI deducts such amounts from gross product revenue and accounts receivable at the time it recognizes the related revenue.

Product Returns

The Company provides contractual return rights to its customers including the right to return product within six months of product expiration and up to 12 months after product expiration, as well as for incorrect shipments, and damaged or defective product, which the Company expects to be rare. Management expects product returns to be minimal, thus BTI recognizes a nominal allowance for product returns at the time of each sale. In the future, if any of these factors and/or the history of product returns changes, the Company will adjust the allowance for product returns.

BTI classifies all fees paid to the distributor, other than those discussed above and those related to warehouse operations, as selling, general and administrative expenses on its Consolidated Statements of Operations. Fees paid to the distributor for warehouse operations are classified as costs of goods sold on BTI’s Consolidated Statements of Operations.

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Cost of Goods Sold

Cost of goods sold includes the cost of producing and distributing inventories that are related to product revenues during the respective period. Cost of goods sold may also include costs related to excess or obsolete inventory adjustment charges, as well as costs related to warehouse operations paid to distributors.

Stock-Based Compensation

The Company measures and recognizes stock-based compensation expense based on estimated fair value for all share-based awards made to employees, non-employee service providers, and directors, including stock options and restricted stock units (“RSUs”). 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 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-based awards are valued at fair value on the date of grant and that fair value is recognized as an expense in the Consolidated Statements of Operations over the requisite service period using the accelerated attribution method. The estimated fair value of stock-based awards was determined using the Black-Scholes pricing model on the date of grant.

The Black-Scholes pricing model is affected by the Company’s stock price, as well as assumptions regarding variables including, but not limited to, the strike price of the instrument, the risk-free rate, the expected stock price volatility over the term of the awards, and expected term of the award. 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, non-cash stock-based compensation, facilities, supplies, external services, clinical study, manufacturing costs related to clinical trials 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 for the program as a result of the level of 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.

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.

Patent Costs

Costs related to filing and pursuing patent applications are recorded in selling, general and administrative expenses and are expensed as incurred since recoverability of such expenditures is uncertain.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value, which is defined 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. The Company applies 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

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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). Fair value measurements must be classified and disclosed in one of the following three categories:

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.

Income Taxes

BTI uses 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.

U.S. GAAP 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. The Company’s financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts.

The Company does not have any unrecognized tax benefits as of December 31, 2022 and 2021. BTI reviews 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.

Earnings (Loss) per Share

Earnings (loss) per share (“EPS”) is calculated by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock that were outstanding. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock that were outstanding for the dilutive effect of common stock equivalents. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be 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

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decisions regarding resource allocation and assessing performance. To date, the Company’s chief operating decision maker has made such decisions and assessed performance at the Company level as one segment.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”), 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 U.S. GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. ASU No. 2019-12 was effective for interim and annual periods beginning after December 15, 2020. The adoption of ASU No. 2019-12 on January 1, 2021 did not have a material impact on the Company’s consolidated 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 (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), and Leases (Topic 842) - Effective Dates, which deferred the effective dates of Topic 326 for the Company, until fiscal year 2023. The Company does not expect the adoption of Topic 326 to have a material impact on its consolidated financial statements.

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Note 4. Inventory

Inventory consists of the following:

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​ ​ ​ ​

​ December 31,

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Raw materials ​ $ 682

Work-in-process ​ ​ 708

Finished goods ​ ​ 595

Total inventory ​ $ 1,985

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There were no write-downs of inventory for the year ended December 31, 2022. The Company did not have commercial inventory as of December 31, 2021.

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