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What changed in Ovid Therapeutics Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Ovid Therapeutics Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+540 added−429 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-13)

Top changes in Ovid Therapeutics Inc.'s 2023 10-K

540 paragraphs added · 429 removed · 203 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

19 edited+290 added−179 removed0 unchanged
Biggest changeIn addition, the Company will be entitled to receive tiered royalties beginning in the low double-digits, and up to 20% on sales of soticlestat if regulatory approval is achieved.
Biggest changeIn addition, if soticlestat achieves regulatory approval, and is successfully commercialized, we are eligible to receive up to an additional $660.0 million in regulatory and commercial milestone payments and potential tiered royalties on net sales of soticlestat at percentages ranging from the low double-digits up to 20%, subject to standard reductions in certain circumstances.
Following the date of regulatory approval by the FDA of the first licensed product in the territory which was received on March 18, 2022, Marinus issued, at the Company's option, 123,255 shares of Marinus common stock, par value $0.001 per share, as payment.
Following the date of regulatory approval by the FDA of the first licensed product in the territory, which was received on March 18, 2022, Marinus issued, at the Company's option, 123,255 shares of Marinus common stock, par value $0.001 per share.
If applicable, royalties are payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale.
Royalties are payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale.
Under the Marinus License Agreement, the Company granted Marinus an exclusive, non-transferable (except as expressly provided therein), royalty-bearing right and license under certain Ovid patents relating to ganaxolone to develop, make, have made, commercialize, promote, distribute, sell, offer for sale and import licensed products in the territory (which consist of the United States, the European Economic Area, United Kingdom and Switzerland) for the treatment of CDKL5 deficiency disorders.
Under the Marinus License Agreement, we granted Marinus an exclusive, non-transferable (except as expressly provided therein), royalty-bearing right and license under certain Ovid patents relating to ganaxolone to develop, make, have made, commercialize, promote, distribute, sell, offer for sale and import licensed products in the territory (which consists of the United States, the European Economic Area, United Kingdom and Switzerland) for the treatment of CDKL5 deficiency disorders.
Upon entry into the Northwestern agreement, the Company paid an upfront non-creditable one-time license issuance fee of $75,000 and is required to pay an annual license maintenance fee of $20,000, which will be creditable against any royalties payable to Northwestern following first commercial sale of licensed products under the agreement.
Upon entry into the Northwestern Agreement, we paid an upfront non-creditable one-time license issuance fee of $75,000, and we are required to pay an annual license maintenance fee of $20,000, which will be creditable against any royalties payable to Northwestern following first commercial sale of licensed products under the agreement.
Under the terms of the Healx License and Option Agreement, Healx, Ltd. has secured a one-year option to investigate gaboxadol "(OV101") as part of a potential combination therapy for Fragile X syndrome in a Phase 2A clinical trial, as well as a treatment for other indications, for an upfront payment of $0.5 million, and fees to support prosecution and maintenance of the Company's relevant intellectual property rights.
Under the terms of the Healx Agreement, Healx has secured a one-year option to investigate gaboxadol (OV101) as part of a potential combination therapy for Fragile X syndrome in a Phase 2A clinical trial, and as a treatment for other indications, for an upfront payment of $0.5 million, and fees to support prosecution and maintenance of our relevant intellectual property rights.
In consideration for the rights granted to the Company under the Northwestern agreement, the Company is required to pay to Northwestern up to an aggregate of $5.3 million upon the achievement of certain development and regulatory milestones for the first product covered by the Northwestern Patent Rights, and upon commercialization of any such products, will be required to pay to Northwestern a tiered royalty on net sales of such products by the Company, its affiliates or sublicensees, at percentages in the low to mid-single-digits, subject to standard reductions and offsets.
In consideration for the rights granted to us under the Northwestern agreement, we are required to pay to Northwestern up to an aggregate of $5.3 million upon the achievement of certain development and regulatory milestones for the first product covered by the Northwestern Patents, and, upon commercialization of any such products, will be required to pay to Northwestern a tiered royalty on net sales of such products by the Company, its affiliates or sublicensees, at percentages in the low to mid-single-digits, subject to standard reductions and offsets.
The Company’s royalty obligations continue on a product-by-product and country-by-country basis until the later of the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country and 10 years following the first commercial sale of such product in such country.
Our royalty obligations continue on a product-by-product and country-by-country basis until the later of the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country and ten years following the first commercial sale of such product in such country.
At the end of the one-year option period, Healx had the option to secure rights to an exclusive license under the Company's relevant intellectual property rights, in exchange for an additional payment of $2.0 million, development and commercial milestone payments, and low to mid-tier double digit royalties.
At the end of the option period, Healx has the option to secure rights to an exclusive license under our relevant intellectual property rights, in exchange for an additional payment of $2.0 million (“Option Fee”), development and commercial milestone payments, and low to mid-tier double digit royalties.
The Company will retain the option to co-develop and co-commercialize the program with Healx ("Ovid Opt-In Right"), at the end of a positive readout of clinical Phase 2B and would share net profits and losses in lieu of the milestones and royalty payments.
We retain the option to co-develop and co-commercialize the program with Healx (“Ovid Opt-In Right”) at the end of a positive readout of clinical phase 2B, and, in such case, would share net profits and losses in lieu of the milestones and royalty payments.
The Company is responsible for all ongoing costs of filing, prosecuting and maintaining the Northwestern Patent Rights, but also has the right to control such activities using its own patent counsel.
We are responsible for all ongoing costs of filing, prosecuting and maintaining the Northwestern Patent Rights, but we also have the right to control such activities using our own patent counsel.
NOTE 10 – COMMITMENTS AND CONTINGENCIES License Agreements Northwestern University License Agreement In December 2016, the Company entered into a license agreement with Northwestern University ("Northwestern"), pursuant to which Northwestern granted the Company an exclusive, worldwide license to patent rights of certain invention ("Northwestern Patent Rights") which relate to a specific compound and related methods of use for such compound, along with certain know-how related to the practice of the inventions claimed in the Northwestern Patent Rights.
The license option will continue until the expiration of all relevant royalty terms. 15 2016 Northwestern License for OV329 In December 2016, we entered into a license agreement (“Northwestern Agreement”) with Northwestern University (“Northwestern”), pursuant to which Northwestern granted us an exclusive, worldwide license to patent rights in certain inventions (“Northwestern Patent Rights”) which relate to a specific compound (OV329) and related methods of use for such compound, along with certain know-how related to the practice of the inventions claimed in the Northwestern Patent Rights.
Royalties will be payable on a country-by-country and product-by-product basis for any indications that soticlestat is approved for and sold during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale.
Royalties are payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product and ending on the expiration of patent rights in such country.
The Marinus License Agreement also provides for payment of royalties from Marinus to the Company in single digits on net sales of each such licensed product sold.
The Marinus License Agreement also provides for payment of royalties from Marinus to us in single-digits on net sales of each such licensed product sold. 2022 License and Option Agreement with Healx In February 2022, we entered into an exclusive license option agreement (“Healx Agreement”) with Healx, Ltd (“Healx” ) .
If the Company sublicenses a Northwestern Patent Right, it will be obligated to pay to Northwestern a specified percentage of sublicense revenue received by the Company, ranging from the high single digits to the low-teens.
If Ovid sublicenses a Northwestern Patent Right, it will be obligated to pay to Northwestern a specified percentage of sublicense revenue received by us, ranging from the high single-digits to the low-teens. The Northwestern Agreement requires that we use commercially reasonable efforts to develop and commercialize at least one product that is covered by the Northwestern Patent Rights.
The Company is developing OV329 under this agreement. F-19 Table of Contents Under the Northwestern agreement, the Company was granted exclusive rights to research, develop, manufacture and commercialize products utilizing the Northwestern Patent Rights for all uses.
Under the Northwestern agreement, we were granted exclusive rights to research, develop, manufacture and commercialize products utilizing the Northwestern Patent Rights for all uses, other than cancer.
The Company has the right to terminate the agreement for any reason upon prior written notice or for an uncured material breach by Northwestern. Northwestern may terminate the agreement for the Company’s uncured material breach or insolvency.
Unless earlier terminated, the Northwestern Agreement will remain in force until the expiration of our payment obligations thereunder. We have the right to terminate the agreement for any reason upon prior written notice or for an uncured material breach by Northwestern. Northwestern may terminate the agreement for our uncured material breach or insolvency. 2015 License Agreement with H.
Healx will assume all responsibility for, and costs of, both development and commercialization of gaboxadol following the exercise of the option.
Healx will also be responsible for all commercialization costs of gaboxadol following the grant of a commercial license upon payment of the Option Fee.
AstraZeneca AB License Agreement On December 30, 2021, the Company entered into an exclusive license agreement with AstraZeneca AB, for a library of early-stage small molecules targeting the KCC2 transporter, including lead candidate OV350.
Under the terms of the AstraZeneca Exclusive License Agreement, we have obtained worldwide rights to a portfolio of early-stage, small molecule compounds targeting the KCC2 transporter, including our lead compound, OV350.
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Consolidated Balance Sheets December 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 44,867,846 $ 187,797,532 Marketable securities 84,133,565 — Prepaid expenses and other current assets 2,379,280 2,681,597 Total current assets 131,380,691 190,479,129 Long-term equity investments 5,622,547 1,631,992 Restricted cash 1,930,753 1,930,753 Right-of-use asset, net 14,922,669 — Property and equipment, net 1,147,963 242,757 Other assets 261,191 260,126 Total assets $ 155,265,814 $ 194,544,757 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,952,910 $ 7,127,046 Accrued expenses 4,504,669 7,671,275 Current portion, lease liability 533,946 — Total current liabilities 6,991,525 14,798,321 Long-term liabilities: Lease liability 16,001,725 — Total liabilities 22,993,250 14,798,321 Stockholders' equity: Preferred stock, $0.001 par value; 10,000,000 shares authorized; Series A convertible preferred stock, 10,000 shares designated, 1,250 shares issued and outstanding at December 31, 2022 and 2021 1 1 Common stock, $0.001 par value; 125,000,000 shares authorized; 70,466,885 and 70,364,912 shares issued and outstanding at December 31, 2022 and 2021, respectively 70,467 70,359 Additional paid-in-capital 357,770,825 351,033,589 Accumulated other comprehensive loss (42,187) — Accumulated deficit (225,526,542) (171,357,513) Total stockholders' equity 132,272,564 179,746,436 Total liabilities and stockholders' equity $ 155,265,814 $ 194,544,757 See accompanying notes to these consolidated financial statements F-4 Table of Contents OVID THERAPEUTICS INC.
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Item 1. BUSINESS Overview Ovid is a biopharmaceutical company that is dedicated to meaningfully improving the lives of people affected by certain epilepsies and brain conditions with seizure symptoms. We believe that addressing these disorders represents a substantial scientific, medical and commercial opportunity.
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Consolidated Statements of Operations For the Year Ended December 31, 2022 For the Year Ended December 31, 2021 Revenue: License and other revenue $ 1,502,748 $ 12,382,779 License revenue - related party — 196,000,000 Total revenue 1,502,748 208,382,779 Operating expenses: Research and development 24,618,399 46,939,583 General and administrative 32,432,510 37,234,104 Total operating expenses 57,050,909 84,173,687 (Loss) income from operations (55,548,161) 124,209,092 Other income (expense), net 1,379,132 (45,690) (Loss) income before provision for income taxes $ (54,169,029) $ 124,163,402 Provision for income taxes — 1,328,818 Net (loss) income $ (54,169,029) $ 122,834,584 Net (loss) income per share, basic $ (0.77) $ 1.78 Net (loss) income per share, diluted $ (0.77) $ 1.76 Weighted-average common shares outstanding, basic 70,424,819 67,479,403 Weighted-average common shares outstanding, diluted 70,424,819 68,067,992 See accompanying notes to these consolidated financial statements F-5 Table of Contents OVID THERAPEUTICS INC.
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Over the last decade, scientific understanding of the underlying biology of neuronal hyperexcitability and the related pathophysiology of epilepsy and many neurological disorders has improved. This understanding of disease, coupled with advances in preclinical research tools, is improving the predictive potential of translational research, and thereby, may increase the probability of successful clinical development of anti-seizure medicines (“ASMs”).
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Consolidated Statements of Comprehensive (Loss) Income For the Year Ended December 31, 2022 For the Year Ended December 31, 2021 Net (loss) income $ (54,169,029) $ 122,834,584 Other comprehensive loss: Unrealized loss on marketable securities (42,187) — Comprehensive (loss) income $ (54,211,216) $ 122,834,584 See accompanying notes to these consolidated financial statements F-6 Table of Contents OVID THERAPEUTICS INC.
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Emerging science also indicates that addressing the underlying causes of hyperexcitability may have therapeutic applications in broad neurological disease well beyond epilepsy. The large global epilepsy market opportunity reflects significant unmet medical need and economic potential. Epilepsy therapeutics today represent an approximately $8 billion market globally.
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Consolidated Statement of Changes in Stockholders’ Equity Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shares Amount Shares Amount Balance, December 31, 2021 1,250 $ 1 70,364,912 $ 70,359 $ 351,033,589 $ — $ (171,357,513) $ 179,746,436 Issuance of common stock from exercise of stock options and employee stock purchase plan — — 101,973 108 180,550 — — 180,658 Stock-based compensation expense — — — — 6,556,686 — — 6,556,686 Other comprehensive loss — — — — — (42,187) — (42,187) Balance, Net loss — — — — — — (54,169,029) (54,169,029) Balance, December 31, 2022 1,250 $ 1 70,466,885 $ 70,467 $ 357,770,825 $ (42,187) $ (225,526,542) $ 132,272,564 Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shares Amount Shares Amount Balance, December 31, 2020 3,250 $ 3 65,743,170 $ 65,743 $ 337,758,007 $ — $ (294,192,097) $ 43,631,656 Issuance of common stock in asset acquisition — — 2,272,727 2,273 7,297,727 — — 7,300,000 Issuance of common stock from exercise of stock options and employee stock purchase plan — — 349,015 343 925,396 — — 925,739 Conversion of series A convertible preferred stock to common stock (2,000) (2) 2,000,000 2,000 (1,998) — — — Stock-based compensation expense — — — — 5,054,457 — — 5,054,457 Net income — — — — — — 122,834,584 122,834,584 Balance, December 31, 2021 1,250 $ 1 70,364,912 $ 70,359 $ 351,033,589 $ — $ (171,357,513) $ 179,746,436 See accompanying notes to these consolidated financial statements F-7 Table of Contents OVID THERAPEUTICS INC.
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Evidence supporting the opportunity includes the number of recent acquisitions of epilepsy assets and companies, several of which have been acquired for values greater than $1.0 billion. The unmet need of people affected by seizures remains significant. Approximately three million Americans live with epilepsies today and approximately 50 million people suffer from epilepsy worldwide.
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Consolidated Statements of Cash Flows Year Ended December 31, 2022 Year Ended December 31, 2021 Cash flows from operating activities: Net (loss) income $ (54,169,029) $ 122,834,584 Adjustments to reconcile net (loss) income to cash used in operating activities: Non-cash research and development expense — 7,300,000 Non-cash consideration received in licensing agreement transaction (945,366) — Unrealized loss on equity investment 454,811 — Interest income and accretion of discount on marketable securities (1,211,311) — Stock-based compensation expense 6,556,686 5,054,457 Depreciation and amortization expense 512,505 237,079 Amortization of right-of-use asset 869,100 — Accretion of lease liability 936,927 — Change in operating assets and liabilities: Prepaid expenses and other current assets 109,292 40,503 Accounts payable (5,174,136) 1,702,497 Accrued expenses (3,166,606) (4,361,410) Deferred revenue — (12,382,779) Related party payable — (2,432,192) Related party receivable — 141,763 Long-term prepaid expenses — 477,171 Net cash (used in) provided by operating activities (55,227,127) 118,611,673 Cash flows from investing activities: Purchase of marketable securities (172,964,441) — Sales/maturities of marketable securities 90,000,000 — Purchase of long-term equity investments (2,500,000) (1,631,992) Issuance of short-term note receivable (1,000,000) — Purchase of property and equipment (1,224,379) (184,008) Software development and other assets (194,397) (5,400) Net cash used in investing activities (87,883,217) (1,821,400) Cash flows from financing activities: ATM and other offering costs — (21,314) Proceeds from exercise of options and employee stock purchase plan 180,658 925,396 Net cash provided by financing activities 180,658 904,082 Net (decrease) increase in cash, cash equivalents and restricted cash (142,929,686) 117,694,355 Cash, cash equivalents and restricted cash, at beginning of period 189,728,285 72,033,930 Cash, cash equivalents and restricted cash, at end of period $ 46,798,599 $ 189,728,285 Non-cash investing and financing activities: Right-of-use asset in exchange for lease liability $ 15,791,769 $ — Conversion of short-term note receivable to long-term equity investment $ 1,000,000 $ — See accompanying notes to these consolidated financial statements F-8 Table of Contents OVID THERAPEUTICS, INC.
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We have proven capabilities and expertise in the successful clinical development of ASMs. We have applied our knowledge to build a differentiated pipeline of medicines with potential first-in-class or best-in-class drug mechanisms of action (“MoA”) to treat epilepsies and brain disorders with seizure symptoms.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – NATURE OF OPERATIONS Ovid Therapeutics Inc. (the “Company”) was incorporated under the laws of the state of Delaware and commenced operations on April 1, 2014 (date of inception) and maintains its principal executive office in New York, New York.
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Our pipeline has produced three programs with potential first-in-class MoAs, and one program with a potential best-in-class MoA. Currently, three of these programs are in clinical trials in humans. The fourth is in preclinical studies and is anticipated to advance into human safety studies in 2024.
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The Company is a biopharmaceutical company currently focused on developing impactful medicines for patients and families living with epilepsies and seizure-related neurological disorders.
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An overview of these programs includes: • Soticlestat , a novel cholesterol 24 hydroxylase (“CH24”) inhibitor, which is currently being evaluated in two pivotal Phase 3 trials for Dravet syndrome and Lennox-Gastaut syndrome by Takeda Company Limited (“Takeda”). Takeda purchased our rights to soticlestat, and is conducting the pivotal trials.
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Since its inception, the Company has devoted substantially all of its efforts to business development, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of convertible preferred stock (“Preferred Stock”), common stock and other equity instruments.
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We maintain a significant financial interest in the potential approval and commercialization of soticlestat via potential regulatory and commercial milestones of up to $660.0 million and net sales-based royalty payments from low double digits up to 20%.
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The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and the ability to secure additional capital to fund operations.
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We sold a 13% stake in the royalty, regulatory and commercial milestone payments that we are eligible to receive from Takeda to Ligand Pharmaceuticals Incorporated for $30.0 million. • OV888 (GV101), a highly selective inhibitor of rho associated coiled-coil containing protein kinase 2 (“ROCK2”), which is being developed as a potential first-in-class medicine to treat cerebral cavernous malformations (“CCM”), of which seizures are among common symptoms.
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Historically, the Company’s major sources of cash have been licensing revenue, proceeds from various public and private offerings of its capital stock, and interest income. As of December 31, 2022, the Company had approximately $129.0 million in cash, cash equivalents and marketable securities.
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OV888 (GV101) is completing a Phase 1 double-blind, multiple-ascending dose trial and is expected to initiate its Phase 2 program in 2024.
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Since inception, the Company has generated $222.5 million in revenue which is primarily comprised of $25.0 million received pursuant to the Company’s license and collaboration agreement (the “Angelini License Agreement”) with Angelini Pharma Rare Diseases AG (“Angelini”) and a one-time, upfront payment of $196.0 million received pursuant to the Company’s royalty, license and termination agreement ("RLT Agreement") with Takeda Pharmaceutical Company Limited (“Takeda”).
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A higher dose cohort has been added to the Phase 1 trial and no serious adverse events have been observed. • OV329 , a highly potent next-generation GABA-aminotransferase inhibitor (“GABA-AT”), that is thought to potentially deliver preferable seizure reduction and dosing relative to prior medicines in the class.
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Historically, the Company has incurred recurring losses, has experienced recurring negative operating cash flows and required significant cash resources to execute its business plans. The Company has an accumulated deficit of $225.5 million as of December 31, 2022, working capital of $124.4 million and had cash used in operating activities of $55.2 million for the year ended December 31, 2022.
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An oral formulation of OV329 is currently being evaluated in a Phase 1 study that uses biomarkers for efficacy and target engagement.
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The Company recorded a net loss of $54.2 million during the fiscal year ended December 31, 2022, expects to incur losses in subsequent periods for at least the next several years, and is highly dependent on its ability to find additional sources of funding through either equity offerings, debt financings, collaborations, strategic alliances, licensing agreements or a combination of any such transactions.
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An intravenous formulation of OV329 is also in development for acute seizures and is expected to enter human safety studies in 2025. • OV350 , a potential first-in-class direct activator of the central nervous system (“CNS”), specific K-Cl co-transporter (“KCC2”) and is the most advanced of a unique portfolio of drugs leads which are direct KCC2 activator compounds.
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Management believes that the Company’s existing cash, cash equivalents and marketable securities as of December 31, 2022 will be sufficient to fund its current operating plans through at least 12 months from the date of filing of the Company’s Annual Report on Form 10-K. Adequate additional funding may not be available to the Company on acceptable terms or at all.
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Oral and intravenous (“IV”) formulations of several of these compounds have been prepared and have demonstrated activity in multiple preclinical disease models. We expect to file the first investigational new drug application (“IND”) from this portfolio in 2024. We believe this portfolio has the potential to deliver multiple INDs over the years to come.
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The failure to raise capital as and when needed could have a negative impact on the Company’s financial condition and ability to pursue its business strategy.
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Collectively, these development programs are anticipated to create a range of value-creating milestones in the near- and mid-term for investors. 3 The Opportunity: Epilepsies and Neurological Disorders Although it is one of the earliest known maladies documented by humanity four millennia ago, epilepsy remains a common, and often intractable, medical diagnosis.
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The Company may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain drug candidates that the Company might otherwise seek to develop or commercialize independently.
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Approximately 50 million people globally experience epilepsy, including an estimated three million adults living with epilepsy in the United States. While modern drug discovery efforts have produced more than 30 ASMs over the last 100 years, a substantial number of epilepsy patients continue to experience breakthrough seizures that can cause enduring damage to the brain.
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The Company is subject to other challenges and risks specific to the Company's business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: delays or problems in the supply of the Company's product candidates, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing the Company's intellectual property rights; complying with applicable regulatory requirements; and obtaining regulatory approval of any of the Company's product candidates.
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Individuals who suffer from rare forms of refractory epilepsies may experience persistent seizure rates ranging from 50 - 90%. The seizures they suffer can have a devastating impact both upon patients and their families, by triggering permanent motor, cognitive and developmental delays, as well as epileptogenesis, which is a cascade of seizures begetting more seizures.
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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of Ovid Therapeutics Inc. and its wholly-owned subsidiary, Ovid Therapeutics Hong Kong Limited.
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Some patients with developmental epileptic encephalopathies experience even greater rates of refractory seizures that are resistant to drug therapy. With an estimated 70% of epilepsy diagnoses occurring in people less than 20 years of age, the need to treat seizures early and effectively is critical to mitigate worsening and permanent later-life disabilities.
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All intercompany transactions and balances have been eliminated in consolidation.
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In the search for seizure control, approximately half of patients take a polypharmacy regimen of five or more ASMs, requiring careful management of drug side effects and interactions. The large population of patients requiring multiple drug therapies to control seizures, and persistent rates of breakthrough seizures, signal the urgent need for effective new medicines.
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F-9 Table of Contents (B) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
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For these patients, new mechanisms of action that demonstrate improved efficacy, safety and tolerability profiles are optimal, as they may be more easily incorporated into existing treatment regimens without the fear of drug-to-drug interactions (“DDIs”).
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Actual results could differ materially from those estimates. (C) Comprehensive (Loss) Income Comprehensive (loss) income includes net (loss) income as well as unrealized gains and losses on available-for-sale securities. (D) Marketable Securities Marketable securities consist of investments in U.S. treasury instruments which are considered available-for-sale securities.
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Scientific progress, including the availability of genetic testing, improved radiographic scanning tools, and more accurate means of measuring non-seizure symptoms are illuminating the underpinning seizure disorders. The great unmet medical need and scientific advancements have set the stage for a potential era of neurotherapeutics, which we believe will be led by ASMs.
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The Company classifies its marketable securities with maturities of less than one year from the balance sheet date as current assets on its consolidated balance sheets. Unrealized gains and losses on these securities that are determined to be temporary are reported as a separate component of accumulated other comprehensive loss in stockholders' equity.
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The Ovid Strategy The science underlying the discovery and development of new drugs for the brain has changed fundamentally over the last decade. We believe that major developments in the understanding of the biology of these diseases means that key areas of unmet need, including many epilepsies and seizure disorders, are now addressable and offer significant medical potential.
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(E) Restricted Cash The Company classifies as restricted cash all cash pledged as collateral to secure long-term obligations and all cash for which use is otherwise limited by contractual provisions. Amounts are reported as non-current unless restrictions are expected to be released in the next 12 months.
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Our team has proven expertise in understanding MoAs that underlie seizures and shaping potential therapies to treat rare epilepsies and disorders with seizures. Specifically, we have built a pipeline focused on treating the extrinsic or intrinsic causes of neuronal hyperexcitability.
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(F) Long-term Equity Investments Long-term equity investments consist of an equity investment in the preferred shares of Gensaic, Inc., formerly M13 Therapeutics, Inc. ("Gensaic"), a privately held corporation.
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This know-how affords us an ability to build Ovid in a manner focused on delivering successive, novel medicines for epilepsies and seizure-related neurological conditions. Our strategy is to create sustainable, long-term value by advancing an exciting and differentiated pipeline of small molecules that culminates in a fully integrated neurotherapeutics company with multiple commercial medicines and clinical stage programs.
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The preferred shares are not considered in-substance common stock, and the investment is accounted for at cost, with adjustments for observable changes in prices or impairments, and is classified within long-term equity investments on our consolidated balance sheets with adjustments recognized in other income (expense), net on our consolidated statements of operations.
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Over time, we intend to seek to expand our current pipeline of predominantly ASMs to include additional franchises of neurology programs via focused clinical development and business development activities. This corporate strategy is underpinned by specific research and development, financial and business development strategies.
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The Company has determined that the equity investment does not have a readily determinable fair value and elected the measurement alternative. Therefore, the equity investment’s carrying amount will be adjusted to fair value at the time of the next observable price change for the identical or similar investment of the same issuer or when an impairment is recognized.
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In addition, our Company seeks to protect shareholder value by creating multiple sources of potential revenue via clinical and commercial milestones from our pipeline, strategic collaborations and partnerships. Our approach to building an epilepsy franchise has already resulted in success, namely the development and subsequent repurchase of our rights to soticlestat by Takeda.
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Each reporting period, the Company performs a qualitative assessment to evaluate whether the investment is impaired. The assessment includes a review of recent operating results and trends, recent sales/acquisitions of the investee's securities, and other publicly available data. If the investment is impaired, the Company writes it down to its estimated fair value.
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In 2017, we in-licensed a 50% stake in soticlestat for $26.0 million, and further invested $57.0 million in designing and executing soticlestat’s early and mid-stage clinical trials.
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As of December 31, 2022 and 2021, the equity investment had a carrying value of $5.1 million and $1.6 million, respectively. Long-term equity investments also consist of an equity investment in the common shares of Marinus Pharmaceuticals, Inc. ("Marinus") that was received as non-cash consideration via the terms of a licensing agreement executed between the two companies effective March 2022.
Added
In 2021, following encouraging Phase 2 findings, which we delivered six months ahead of schedule, we entered into a Royalty, License and Termination Agreement (“RLT Agreement”) through which we sold back our rights to soticlestat to Takeda.
Removed
The equity shares are marked-to-market at each reporting date with changes in the fair value being reflected in the carrying value of the investment on the Company's consolidated balance sheets and other income (expense), net on the Company's consolidated statements of operations. As of December 31, 2022, the equity investment in Marinus had a carrying value of approximately $0.5 million.
Added
The RLT Agreement provided us with $196.0 million paid in Q1 2021 and, if soticlestat is approved and successfully commercialized, we are eligible to receive up to $660.0 million in sales and regulatory milestone payments and low double-digits up to 20% of potential net sales-based tiered royalty payments. The RLT Agreement provides us with a potential stream of non-dilutive capital.
Removed
No impairments were recognized in the years ending December 31, 2022 and 2021. (G) Note Receivable On March 17, 2022, the Company issued a convertible promissory note with a principal amount of $1.0 million to Gensaic. The note included features that permitted the Company to acquire additional equity or to settle the note in cash.
Added
The funds received from this transaction have enabled us to invest in and secure what we believe is a world-leading pipeline during a period when we believe the cost of capital would have been unduly expensive.
Removed
In August 2022, the Company executed an agreement with Gensaic which resulted in the conversion of the note into additional equity and was recorded as a long-term equity investment in the consolidated balance sheets. The Company received interest on the convertible promissory note at the rate of 1.5% per annum through the date of conversion.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

127 edited+38 added−34 removed340 unchanged
Biggest changeClinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our drug candidates, if approved, or allow our competitors to bring comparable drugs to market before we do, which could impair our ability to successfully commercialize our drug candidates and may harm our business, financial condition, results of operations and prospects. 29 Table of Contents Additionally, if the results of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with our drug candidates, we may: • be delayed in obtaining marketing approval, if at all; • obtain approval for indications or patient populations that are not as broad as intended or desired; • obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; • be subject to additional post-marketing testing requirements; • be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements; • have regulatory authorities withdraw, or suspend, their approval of the drug or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy (“REMS”); • be subject to the addition of labeling statements, such as warnings or contraindications; • be sued; or • experience damage to our reputation.
Biggest changeAdditionally, if the results of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with our drug candidates, we may: • be delayed in obtaining marketing approval, if at all; • obtain approval for indications or patient populations that are not as broad as intended or desired; • obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; • be subject to additional post-marketing testing requirements; • be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements; • have regulatory authorities withdraw, or suspend, their approval of the drug or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy (“REMS”); • be subject to the addition of labeling statements, such as warnings or contraindications; • be sued; or • experience damage to our reputation.
In addition, under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (“Code”), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” its ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited.
In addition, under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” its ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited.
If we are not successful in discovering, developing and commercializing additional drug candidates, our ability to expand our business and achieve our strategic objectives would be impaired. A key element of our current strategy is to discover, develop and potentially commercialize a portfolio of drug candidates to treat epilepsies, seizure-related disorders, and rare neurological disorders.
If we are not successful in discovering, developing and commercializing additional drug candidates, our ability to expand our business and achieve our strategic objectives would be impaired. A key element of our current strategy is to discover, develop and potentially commercialize a portfolio of drug candidates to treat rare epilepsies, seizure-related disorders, and rare neurological disorders.
Because the patient populations in the market for our drug candidates may be small and difficult to assess, we must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth. We focus our research and drug development on treatments for epilepsies, seizure-related disorders and rare neurological disorders.
Because the patient populations in the market for our drug candidates may be small and difficult to assess, we must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth. We focus our research and drug development on treatments for rare epilepsies, seizure-related disorders and rare neurological disorders.
Our business strategy is based on acquiring or in-licensing compounds directed at epilepsies, seizure-related disorders, and rare neurological disorders. As a result, we intend to periodically explore a variety of possible additional strategic collaborations in an effort to gain access to additional drug candidates or resources.
Our business strategy is based on acquiring or in-licensing compounds directed at rare epilepsies, seizure-related disorders, and rare neurological disorders. As a result, we intend to periodically explore a variety of possible additional strategic collaborations in an effort to gain access to additional drug candidates or resources.
On December 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”) was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation.
On December 16, 2011, the Leahy-Smith America Invents Act (“Leahy-Smith Act”) was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation.
Significant disruptions of our, our third-party vendors’ and/or business partners’ information technology systems or other similar data security incidents could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, sensitive information, which could result in financial, legal, regulatory, business and reputational harm to us.
Significant disruptions of our, our third-party vendors’ and/or business partners’ information technology systems or other similar data security incidents could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, sensitive data, which could result in financial, legal, regulatory, business and reputational harm to us.
The concentration of voting power, Takeda standstill provisions, voting obligations and transfer restrictions could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in the management of our company in ways with which other stockholders disagree with.
The concentration of voting power, Takeda standstill provisions, voting obligations and transfer restrictions could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in the management of our company in ways with which other stockholders disagree.
If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. • Coverage and adequate reimbursement may not be available for our current or any future drug candidates, which could make it difficult for us to sell profitably, if approved. • If we are unable to obtain and maintain patent protection for our current or any future drug candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets. • We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time consuming and unsuccessful. • We do not have our own manufacturing capabilities and will rely on third parties to produce clinical and commercial supplies of our current and any future drug candidates. • We intend to rely on third parties to conduct, supervise and monitor our preclinical studies and clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business. • We may need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations. • We may be subject to numerous and varying privacy and security laws, and our failure to comply could result in penalties and reputational damage.
If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. • Coverage and adequate reimbursement may not be available for our current or any future drug candidates, which could make it difficult for us to sell profitably, if approved. • If we are unable to obtain and maintain patent protection for our current or any future drug candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets. • We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time consuming and unsuccessful. • We do not have our own manufacturing capabilities and will rely on third parties to produce clinical and commercial supplies of our current and any future drug candidates. • We intend to rely on third parties to conduct, supervise and monitor our preclinical studies and clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business. 26 • We may need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations. • We may be subject to numerous and varying privacy and security laws, and our failure to comply could result in penalties and reputational damage.
Any potential acquisition or strategic partnership may entail numerous risks, including: • increased operating expenses and cash requirements; • the assumption of additional indebtedness or contingent liabilities; • assimilation of operations, intellectual property and drugs of an acquired company, including difficulties associated with integrating new personnel; • the diversion of our management’s attention from our existing drug programs and initiatives in pursuing such a strategic partnership, merger or acquisition; • retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships; • risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing drugs or drug candidates and regulatory approvals; • our inability to generate revenue from acquired technology and/or drugs sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs; • challenges related to integrating acquired businesses or entering into or realizing the benefits of strategic transactions generally; and • risks associated with potential international acquisition transactions, including in countries where we do not currently have a material presence.
Any potential acquisition or strategic partnership may entail numerous risks, including: • increased operating expenses and cash requirements; • the assumption of additional indebtedness or contingent liabilities; • assimilation of operations, intellectual property and drugs of an acquired company, including difficulties associated with integrating new personnel; • the diversion of our management’s attention from our existing drug programs and initiatives in pursuing such a strategic partnership, merger or acquisition; • retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships; • risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing drugs or drug candidates and regulatory approvals; • our inability to generate revenue from acquired technology and/or drugs sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs; 39 • challenges related to integrating acquired businesses or entering into or realizing the benefits of strategic transactions generally; and • risks associated with potential international acquisition transactions, including in countries where we do not currently have a material presence.
The degree of market acceptance of our current or future drug candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to: • the efficacy and potential advantages compared to alternative treatments and therapies; • the safety profile of our drug candidate compared to alternative treatments and therapies; • effectiveness of sales and marketing efforts; • the strength of our relationships with patient communities; • the cost of treatment in relation to alternative treatments and therapies, including any similar generic treatments; • our ability to offer such drug for sale at competitive prices; • the convenience and ease of administration compared to alternative treatments and therapies; • the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; • the strength of marketing and distribution support; • the availability of third-party coverage and adequate reimbursement; • the prevalence and severity of any side effects; and • any restrictions on the use of the drug together with other medications.
The degree of market acceptance of our current or future drug candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to: • the efficacy and potential advantages compared to alternative treatments and therapies; • the safety profile of our drug candidate compared to alternative treatments and therapies; • effectiveness of sales and marketing efforts; • the strength of our relationships with patient communities; • the cost of treatment in relation to alternative treatments and therapies, including any similar generic treatments; • our ability to offer such drug for sale at competitive prices; • the convenience and ease of administration compared to alternative treatments and therapies; 35 • the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; • the strength of marketing and distribution support; • the availability of third-party coverage and adequate reimbursement; • the prevalence and severity of any side effects; and • any restrictions on the use of the drug together with other medications.
The PPACA provides, and recent government cases against pharmaceutical and medical device manufacturers support, the view that federal Anti-Kickback Statute violations and certain marketing practices, including off-label promotion, may implicate the False Claims Act; • the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created additional federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or making false or fraudulent statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private); • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to HIPAA, published in January 2013, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, and their respective business associates, individuals or entities that perform certain services on behalf of a covered entity that involves the use or disclosure of individually identifiable health information and their subcontractors that use, disclose or otherwise process individually identifiable health information; • Physician Payments Sunshine Act, which is part of the PPACA, that require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (“CMS”), information related to: (i) payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals; and (ii) ownership and investment interests held by physicians and their immediate family members; • state and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare 38 Table of Contents providers or marketing expenditures and/or information regarding drug pricing, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers, state laws and regulations that require drug manufacturers to file reports relating to drug pricing and marketing information, and state and local laws that require the registration of pharmaceutical sales representatives; and • state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
The PPACA provides, and recent government cases against pharmaceutical and medical device manufacturers support, the view that federal Anti- 40 Kickback Statute violations and certain marketing practices, including off-label promotion, may implicate the False Claims Act; • the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created additional federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or making false or fraudulent statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private); • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to HIPAA, published in January 2013, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, and their respective business associates, individuals or entities that perform certain services on behalf of a covered entity that involves the use or disclosure of individually identifiable health information and their subcontractors that use, disclose or otherwise process individually identifiable health information; • Physician Payments Sunshine Act, which is part of the PPACA, that require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (“CMS”), information related to: (i) payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals; and (ii) ownership and investment interests held by physicians and their immediate family members; • state and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and/or information regarding drug pricing, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers, state laws and regulations that require drug manufacturers to file reports relating to drug pricing and marketing information, and state and local laws that require the registration of pharmaceutical sales representatives; and • state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Some of the more significant risks we face include the following: • Historically, we have incurred significant operating losses and expect to continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability. • Our operating history may make it difficult to evaluate the success of our business to date and to assess our future viability. • We will require additional capital to finance our operations, which may not be available on acceptable terms, if at all.
Some of the more significant risks we face include the following: • Historically, we have incurred significant operating losses and expect to continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability. 25 • Our operating history may make it difficult to evaluate the success of our business to date and to assess our future viability. • We will require additional capital to finance our operations, which may not be available on acceptable terms, if at all.
If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock. Changes in U.S. patent law or the patent law of other countries or jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our current and any future drug candidates.
If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock. 48 Changes in U.S. patent law or the patent law of other countries or jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our current and any future drug candidates.
If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their drug earlier than might otherwise be the case. Intellectual property rights do not necessarily address all potential threats to our business.
If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their drug earlier than might otherwise be the case. 46 Intellectual property rights do not necessarily address all potential threats to our business.
The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information.
The CCPA gives California residents expanded rights to access, correct and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information.
Our ability to generate revenue from drug sales depends heavily on our, or any current or future collaborators’, success in the following areas, including but not limited to: • timely and successfully completing preclinical and clinical development of our current and future drug candidates; • obtaining regulatory approvals for our current and future drug candidates for which we successfully complete clinical trials; • launching and commercializing any drug candidates for which we obtain regulatory approval by establishing a sales force, marketing and distribution infrastructure or, alternatively, collaborating with a commercialization partner; • qualifying for coverage and adequate reimbursement by government and third-party payors for any drug candidates for which we obtain regulatory approval, both in the United States and internationally; • developing, validating and maintaining a commercially viable, sustainable, scalable, reproducible and transferable manufacturing process for our current and future drug candidates that is compliant with current good manufacturing practices (“cGMP”); • establishing and maintaining supply and manufacturing relationships with third parties that can provide an adequate amount and quality of drugs and services to support clinical development, as well as the market demand for our current and future drug candidates, if approved; • obtaining market acceptance, if and when approved, of our current or any future drug candidates as a viable treatment option by physicians, patients, third-party payors and others in the medical community; • effectively addressing any competing technological and market developments; • implementing additional internal systems and infrastructure, as needed; • negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations pursuant to such arrangements; • obtaining and maintaining orphan drug exclusivity for any of our current and future drug candidates for which we obtain regulatory approval; 26 Table of Contents • maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; • avoiding and defending against third-party interference or infringement claims; and • securing appropriate pricing in the United States, the European Union and other countries.
Our ability to generate revenue from drug sales depends heavily on our, or any current or future collaborators’, success in the following areas, including but not limited to: • timely and successfully completing preclinical and clinical development of our current and future drug candidates; • obtaining regulatory approvals for our current and future drug candidates for which we successfully complete clinical trials; • launching and commercializing any drug candidates for which we obtain regulatory approval by establishing a sales force, marketing and distribution infrastructure or, alternatively, collaborating with a commercialization partner; • qualifying for coverage and adequate reimbursement by government and third-party payors for any drug candidates for which we obtain regulatory approval, both in the United States and internationally; 29 • developing, validating and maintaining a commercially viable, sustainable, scalable, reproducible and transferable manufacturing process for our current and future drug candidates that is compliant with current good manufacturing practices (“cGMP”); • establishing and maintaining supply and manufacturing relationships with third parties that can provide an adequate amount and quality of drugs and services to support clinical development, as well as the market demand for our current and future drug candidates, if approved; • obtaining market acceptance, if and when approved, of our current or any future drug candidates as a viable treatment option by physicians, patients, third-party payors and others in the medical community; • effectively addressing any competing technological and market developments; • implementing additional internal systems and infrastructure, as needed; • negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations pursuant to such arrangements; • obtaining and maintaining orphan drug exclusivity for any of our current and future drug candidates for which we obtain regulatory approval; • maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; • avoiding and defending against third-party interference or infringement claims; and • securing appropriate pricing in the United States, the European Union and other countries.
Our current and future collaborations could subject us to a number of risks, including: • we may be required to undertake the expenditure of substantial operational, financial and management resources; • we may be required to issue equity securities that would dilute our stockholders’ percentage of ownership; • we may be required to assume substantial actual or contingent liabilities; • we may not be able to control the amount and timing of resources that our strategic collaborators devote to the development or commercialization of our drug candidates; • strategic collaborators may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a drug candidate, repeat or conduct new clinical trials or require a new version of a drug candidate for clinical testing; • strategic collaborators may not pursue further development and commercialization of products resulting from the strategic collaboration arrangement or may elect to discontinue research and development programs; • strategic collaborators may not commit adequate resources to the marketing and distribution of our drug candidates, limiting our potential revenues from these products; • we rely on our current collaborators to manufacture drug substance and drug product and may do so with respect to future collaborators, which could result in disputes or delays; • disputes may arise between us and our strategic collaborators that result in the delay or termination of the research, development or commercialization of our drug candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources; • disputes may arise between us and our current or future collaborators regarding any termination of any collaboration, license, or other business development arrangement in which we may enter; • strategic collaborators may experience financial difficulties; • strategic collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation; • business combinations or significant changes in a strategic collaborator’s business strategy may also adversely affect a strategic collaborator’s willingness or ability to complete its obligations under any arrangement; • strategic collaborators could decide to move forward with a competing drug candidate developed either independently or in collaboration with others, including our competitors; and 36 Table of Contents • strategic collaborators could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing our drug candidates.
Our current and future collaborations could subject us to a number of risks, including: • we may be required to undertake the expenditure of substantial operational, financial and management resources; • we may be required to issue equity securities that would dilute our stockholders’ percentage of ownership; 38 • we may be required to assume substantial actual or contingent liabilities; • we may not be able to control the amount and timing of resources that our strategic collaborators devote to the development or commercialization of our drug candidates; • strategic collaborators may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a drug candidate, repeat or conduct new clinical trials or require a new version of a drug candidate for clinical testing; • strategic collaborators may not pursue further development and commercialization of products resulting from the strategic collaboration arrangement or may elect to discontinue research and development programs; • strategic collaborators may not commit adequate resources to the marketing and distribution of our drug candidates, limiting our potential revenues from these products; • we rely on our current collaborators to manufacture drug substance and drug product and may do so with respect to future collaborators, which could result in disputes or delays; • disputes may arise between us and our strategic collaborators that result in the delay or termination of the research, development or commercialization of our drug candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources; • disputes may arise between us and our current or future collaborators regarding any termination of any collaboration, license, or other business development arrangement in which we may enter; • strategic collaborators may experience financial difficulties; • strategic collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation; • business combinations or significant changes in a strategic collaborator’s business strategy may also adversely affect a strategic collaborator’s willingness or ability to complete its obligations under any arrangement; • strategic collaborators could decide to move forward with a competing drug candidate developed either independently or in collaboration with others, including our competitors; and • strategic collaborators could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing our drug candidates.
These estimates have been derived from a variety of sources, including the scientific literature, patient foundations, or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these disorders. The number of patients may turn out to be lower than expected.
These estimates have been derived from a variety of sources, including the scientific literature, patient foundations, or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these 34 disorders. The number of patients may turn out to be lower than expected.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Obtaining orphan drug designations is important to our business strategy; however, obtaining an orphan drug designation can be difficult and we may not be successful in doing so.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. 43 Obtaining orphan drug designations is important to our business strategy; however, obtaining an orphan drug designation can be difficult and we may not be successful in doing so.
Any significant delay in the supply of a drug candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our drug candidates.
Any significant delay in the supply of a drug candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could 49 considerably delay completion of our clinical trials, product testing and potential regulatory approval of our drug candidates.
Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders.
Because we are incorporated in Delaware, we are governed by the 59 provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders.
Further, our business development activities and research activities may present attractive opportunities outside of epilepsies and seizure-related disorders and we may choose to pursue drug candidates in other areas of interest including other disorders and diseases that we believe would be in the best interest of the Company and our stockholders.
Further, our business development activities and research activities may present attractive opportunities outside of rare epilepsies and seizure-related disorders and we may choose to pursue drug candidates in other areas of interest including other disorders and diseases that we believe would be in the best interest of the Company and our stockholders.
The United States Patent Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013.
The United States Patent Office recently developed new regulations and procedures to govern 45 administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013.
Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and prospects. See the section herein titled “Legal Proceedings” for additional information.
Claims that we have misappropriated the confidential information or trade 47 secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and prospects. See the section herein titled “Legal Proceedings” for additional information.
Further, our reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured drug candidates ourselves including: • inability to meet our drug specifications and quality requirements consistently; • delay or inability to procure or expand sufficient manufacturing capacity; • issues related to scale-up of manufacturing; • costs and validation of new equipment and facilities required for scale-up; • failure to comply with cGMP and similar foreign standards; • inability to negotiate manufacturing agreements with third parties under commercially reasonable terms, if at all; • termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; • reliance on single sources for drug components; • lack of qualified backup suppliers for those components that are currently purchased from a sole or single source supplier; 47 Table of Contents • operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier; and • carrier disruptions or increased costs that are beyond our control.
Further, our reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured drug candidates ourselves including: • inability to meet our drug specifications and quality requirements consistently; • delay or inability to procure or expand sufficient manufacturing capacity; • issues related to scale-up of manufacturing; • costs and validation of new equipment and facilities required for scale-up; • failure to comply with cGMP and similar foreign standards; • inability to negotiate manufacturing agreements with third parties under commercially reasonable terms, if at all; • termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; • reliance on single sources for drug components; • lack of qualified backup suppliers for those components that are currently purchased from a sole or single source supplier; • operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier; and • carrier disruptions or increased costs that are beyond our control.
Such Series A convertible preferred stock is convertible any time at the option of the holder thereof subject to the beneficial ownership limitations described in Note 7 to the financial statements contained in this Annual Report on Form 10-K.
Such Series A convertible preferred stock is convertible any time at the option of the holder thereof subject to the beneficial ownership limitations described in Note 7 to the consolidated financial statements contained in this Annual Report on Form 10-K.
In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or 58 prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
Royalties will be payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale.
Royalties will be payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such 37 product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale.
The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.
The shifting compliance environment and the need to build and maintain robust and expandable systems to 41 comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.
In certain circumstances, our third-party licensees are responsible for obtaining regulatory approvals in the countries covered by the license, and we are dependent on their efforts in order to achieve the necessary approvals in order to commercialize our products.
In certain circumstances, our third-party 30 licensees are responsible for obtaining regulatory approvals in the countries covered by the license, and we are dependent on their efforts in order to achieve the necessary approvals in order to commercialize our products.
The market price for our common stock may be influenced by many factors, including: • results of clinical trials of our current and any future drug candidates or those of our competitors; • the success of competitive drugs or therapies; • regulatory or legal developments in the United States and other countries; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • the recruitment or departure of key personnel; • the level of expenses related to our current and any future drug candidates or clinical development programs; • the results of our efforts to discover, develop, acquire or in-license additional drug candidates; • actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; 53 Table of Contents • our inability to obtain or delays in obtaining adequate drug supply for any approved drug or inability to do so at acceptable prices; • disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; • significant lawsuits, including patent or stockholder litigation; • variations in our financial results or those of companies that are perceived to be similar to us; • changes in the structure of healthcare payment systems; • market conditions in the pharmaceutical and biotechnology sectors; • general economic, industry and market conditions; and • the other factors described in this “Risk Factors” section.
The market price for our common stock may be influenced by many factors, including: • results of clinical trials of our current and any future drug candidates or those of our competitors; • the success of competitive drugs or therapies; • regulatory or legal developments in the United States and other countries; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • the recruitment or departure of key personnel; • the level of expenses related to our current and any future drug candidates or clinical development programs; • the results of our efforts to discover, develop, acquire or in-license additional drug candidates; • actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; • our inability to obtain or delays in obtaining adequate drug supply for any approved drug or inability to do so at acceptable prices; • disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; 56 • significant lawsuits, including patent or stockholder litigation; • variations in our financial results or those of companies that are perceived to be similar to us; • changes in the structure of healthcare payment systems; • market conditions in the pharmaceutical and biotechnology sectors; • general economic, industry and market conditions; and • the other factors described in this “Risk Factors” section.
We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology.
We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret 50 protection and allow our potential competitors to access and exploit our proprietary technology.
In addition, any negative results we may report in clinical trials of our drug candidate may make it difficult or impossible to recruit and retain patients in other clinical trials of that same drug candidate.
In addition, any negative results we may report in clinical trials 33 of our drug candidate may make it difficult or impossible to recruit and retain patients in other clinical trials of that same drug candidate.
Any of these events could significantly harm our business, financial condition and prospects. You will be diluted by any conversions of outstanding Series A convertible preferred stock and exercises of outstanding options.
Any of these events could significantly harm our business, financial condition and prospects. 57 You will be diluted by any conversions of outstanding Series A convertible preferred stock and exercises of outstanding options.
If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by The Nasdaq Stock Market LLC, the SEC or other regulatory authorities.
If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by The Nasdaq Stock Market LLC, the SEC or other regulatory authorities.
If we, or our licensees, are not able to obtain the required regulatory approvals, we, or our licensees, will not be able to commercialize our drug candidates, and our ability to generate revenue will be adversely affected. • Because the results of preclinical studies or earlier clinical trials are not necessarily predictive of future results, our drug candidates may not have favorable results in planned or future preclinical studies or clinical trials, or may not receive regulatory approval. 22 Table of Contents • Interim topline and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures, which could result in material changes in the final data. • Preclinical studies and clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes.
If we, or our licensees, are not able to obtain the required regulatory approvals, we, or our licensees, will not be able to commercialize our drug candidates, and our ability to generate revenue will be adversely affected. • Because the results of preclinical studies or earlier clinical trials are not necessarily predictive of future results, our drug candidates may not have favorable results in planned or future preclinical studies or clinical trials, or may not receive regulatory approval. • Interim topline and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures, which could result in material changes in the final data. • Preclinical studies and clinical trials are very expensive, time consuming and difficult to design and implement and involve uncertain outcomes.
Additionally, disputes may arise regarding our rights to intellectual property licensed to us or acquired by us from a third party, including but not limited to: • the scope of intellectual property rights included in, and rights granted under, any license or other agreement; • the sublicensing of patent and other rights under such agreements; • our compliance with our diligence obligations under any license agreement; • the ownership of inventions and know-how resulting from the creation or use of intellectual property by us, alone or with our licensors and collaborators; 35 Table of Contents • the scope and duration of our payment obligations, and our ability to make such payments when they are owed; • our need to acquire additional intellectual property rights from third parties that may impact payments due under such agreements; • the rights of our licensors to terminate any such agreement; • our rights and obligations upon termination of such agreement; and • the scope and duration of exclusivity obligations of each party to the agreement.
Additionally, disputes may arise regarding our rights to intellectual property licensed to us or acquired by us from a third party, including but not limited to: • the scope of intellectual property rights included in, and rights granted under, any license or other agreement; • the sublicensing of patent and other rights under such agreements; • our compliance with our diligence obligations under any license agreement; • the ownership of inventions and know-how resulting from the creation or use of intellectual property by us, alone or with our licensors and collaborators; • the scope and duration of our payment obligations, and our ability to make such payments when they are owed; • our need to acquire additional intellectual property rights from third parties that may impact payments due under such agreements; • the rights of our licensors to terminate any such agreement; • our rights and obligations upon termination of such agreement; and • the scope and duration of exclusivity obligations of each party to the agreement.
For instance, the recently enacted Inflation Reduction Act imposes, among other rules, a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on certain corporate stock repurchases. Further, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted differently, changed, repealed, or modified at any time.
For instance, the recently enacted Inflation Reduction Act of 2022 (the “IRA”) imposes, among other rules, a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on certain corporate stock repurchases. Further, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted differently, changed, repealed, or modified at any time.
The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
The CCPA provides for civil penalties for 54 violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
If we seek approval of our current or future drug candidates outside of the United States, we expect that we will be subject to additional risks in commercialization including: • different regulatory requirements for approval of therapies in foreign countries; • reduced protection for intellectual property rights; • the potential requirement of additional clinical studies in international jurisdictions; • unexpected changes in tariffs, trade barriers and regulatory requirements; • economic weakness, including inflation, or political instability in particular foreign economies and markets; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; • foreign reimbursement, pricing and insurance regimes; • workforce uncertainty in countries where labor unrest is more common than in the United States; • production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and • business interruptions resulting from geopolitical actions, including war or the perception that hostilities may be imminent (such as the ongoing war between Russia and Ukraine), terrorism, natural disasters or public health crises.
If we seek approval of our current or future drug candidates outside of the United States, we expect that we will be subject to additional risks in commercialization including: • different regulatory requirements for approval of therapies in foreign countries; • reduced protection for intellectual property rights; • the potential requirement of additional clinical studies in international jurisdictions; • unexpected changes in tariffs, trade barriers and regulatory requirements; • economic weakness, including inflation, or political instability in particular foreign economies and markets; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; 36 • foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; • foreign reimbursement, pricing and insurance regimes; • workforce uncertainty in countries where labor unrest is more common than in the United States; • production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and • business interruptions resulting from geopolitical tensions, including the ongoing war between Russia and Ukraine and the war in Israel, any other war or the perception that hostilities may be imminent, terrorism, natural disasters or public health crises.
Under the Tax Cuts and Jobs Act, or the Tax Act, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, federal NOLs incurred in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the utilization of federal NOLs incurred in taxable years beginning after December 31, 2020 is limited.
Under the Tax Cuts and Jobs Act, or the Tax Act, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, federal NOLs incurred in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the utilization of such federal NOLs is limited.
In addition, any failure or perceived failure by us or our vendors or business partners to comply with our privacy, confidentiality or data security-related legal or other obligations to third parties, or any further security incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive information, which could include personally identifiable information, may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including clinical sites, regulators or current and potential partners, to lose trust in us or we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects.
In addition, any failure or perceived failure by us or our vendors or business partners to comply with our privacy, confidentiality or data security-related legal or other obligations to third parties, or any further security incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive data, may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including clinical sites, regulators or current and potential partners, to lose trust in us or we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects.
While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology systems, and the sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal and external attacks on our technology environment.
While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology systems, and the sensitive data stored on those systems, make such systems vulnerable to unintentional or malicious, internal and external attacks on our technology environment.
Therefore, we cannot predict with any certainty the schedule for commencement and completion of future clinical trials.
Therefore, we cannot predict with any certainty the schedule for commencement 32 and completion of future clinical trials.
Additionally, if any of our drug candidates receive marketing approval, the FDA could require us to include a black box warning in our label or adopt REMS to ensure that the benefits outweigh its risks, which may include, among other things, a medication guide outlining the risks of the drug for distribution to patients and a communication plan to 31 Table of Contents health care practitioners.
Additionally, if any of our drug candidates receive marketing approval, the FDA could require us to include a black box warning in our label or adopt REMS to ensure that the benefits outweigh its risks, which may include, among other things, a medication guide outlining the risks of the drug for distribution to patients and a communication plan to health care practitioners.
Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to us that violates the regulations of the FDA and non-U.S. regulators, including those laws requiring the reporting of true, complete and accurate information to such regulators, manufacturing standards, 49 Table of Contents healthcare fraud and abuse laws and regulations in the United States and abroad or laws that require the true, complete and accurate reporting of financial information or data.
Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to us that violates the regulations of the FDA and non-U.S. regulators, including those laws requiring the reporting of true, complete and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse laws and regulations in the United States and abroad or laws that require the true, complete and accurate reporting of financial information or data.
Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our drug development efforts or other operations. • We are early in our development efforts of our current drug candidates and all our drug candidates are in preclinical development.
Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our drug development efforts or other operations. • We are early in our development efforts of our current drug candidates and all our drug candidates are in clinical trials or preclinical development.
This could result in increased costs to us, and result in significant legal and financial exposure and/or reputational harm.
This could result in increased 53 costs to us, and result in significant legal and financial exposure and/or reputational harm.
However, our operating plans may change because of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and 24 Table of Contents distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches.
However, our operating plans may change because of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches.
Regardless of merit or eventual outcome, liability claims may result in: • decreased demand for any drug candidate that we may develop; • loss of revenue; • substantial monetary awards to trial participants or patients; • significant time and costs to defend the related litigation; • withdrawal of clinical trial participants; • the inability to commercialize any drug candidate that we may develop; and 34 Table of Contents • injury to our reputation and significant negative media attention.
Regardless of merit or eventual outcome, liability claims may result in: • decreased demand for any drug candidate that we may develop; • loss of revenue; • substantial monetary awards to trial participants or patients; • significant time and costs to defend the related litigation; • withdrawal of clinical trial participants; • the inability to commercialize any drug candidate that we may develop; and • injury to our reputation and significant negative media attention.
If we, or a regulatory authority, discover previously unknown problems with a drug, such as adverse events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured or if a regulatory authority disagrees with the promotion, marketing or labeling 41 Table of Contents of that drug, a regulatory authority may impose restrictions relative to that drug, the manufacturing facility or us, including requesting a recall or requiring withdrawal of the drug from the market or suspension of manufacturing.
If we, or a regulatory authority, discover previously unknown problems with a drug, such as adverse events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured or if a regulatory authority disagrees with the promotion, marketing or labeling of that drug, a regulatory authority may impose restrictions relative to that drug, the manufacturing facility or us, including requesting a recall or requiring withdrawal of the drug from the market or suspension of manufacturing.
In addition, many of those third parties in turn subcontract or outsource some of their responsibilities to third parties.
In addition, many of those third parties in turn subcontract or outsource some of their responsibilities to other third parties.
These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative amendments to the statute, will remain in effect until 2031 unless additional Congressional action is taken.
These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 42 2011, which began in 2013, and due to subsequent legislative amendments to the statute, will remain in effect until 2032 unless additional Congressional action is taken.
In particular, these companies have greater experience and expertise in securing reimbursement, government contracts, relationships with key opinion leaders, conducting testing and clinical trials, obtaining and maintaining regulatory approvals and distribution relationships to market products, and marketing approved drugs. These companies also have significantly greater research and marketing capabilities than we do.
In particular, these companies have greater experience and expertise in securing collaboration or partnering relationships, reimbursement, government contracts, relationships with key opinion leaders, conducting testing and clinical trials, obtaining and maintaining regulatory approvals and distribution relationships to market products, and marketing approved drugs. These companies also have significantly greater research and marketing capabilities than we do.
Further, coverage policies and third-party payor reimbursement rates may change at any time. 39 Table of Contents Even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future. Healthcare legislative reform measures may have a negative impact on our business and results of operations.
Further, coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future. Healthcare legislative reform measures may have a negative impact on our business and results of operations.
Events that may prevent successful or timely completion of clinical development include: • our inability to generate sufficient preclinical, toxicology or other data to support the initiation of clinical trials; • our inability to develop and validate disease-relevant clinical endpoints; • delays in reaching a consensus with regulatory authorities on trial design; • delays in reaching agreement on acceptable terms with prospective clinical research organizations (“CROs”) and clinical trial sites; • delays in opening investigational sites; • delays or difficulty in recruiting and enrollment of suitable patients to participate in our clinical trials; • imposition of a clinical hold by regulatory authorities because of a serious adverse event, concerns with a class of drug candidates or after an inspection of our clinical trial operations or trial sites; • delays in having patients complete participation in a trial or return for post-treatment follow-up; • occurrence of serious adverse events associated with the drug candidate that are viewed to outweigh its potential benefits; • changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; or • business interruptions resulting from geo-political actions, including war or the perception that hostilities may be imminent, including, the ongoing war between Russia and Ukraine, terrorism, natural disasters or public health crises.
Events that may prevent successful or timely completion of clinical development include: • our inability to generate sufficient preclinical, toxicology or other data to support the initiation of clinical trials; • our inability to develop and validate disease-relevant clinical endpoints; • delays in reaching a consensus with regulatory authorities on trial design; 31 • delays in reaching agreement on acceptable terms with prospective clinical research organizations (“CROs”) and clinical trial sites; • delays in opening investigational sites; • delays or difficulty in recruiting and enrollment of suitable patients to participate in our clinical trials; • imposition of a clinical hold by regulatory authorities because of a serious adverse event, concerns with a class of drug candidates or after an inspection of our clinical trial operations or trial sites; • delays in having patients complete participation in a trial or return for post-treatment follow-up; • occurrence of serious adverse events associated with the drug candidate that are viewed to outweigh its potential benefits; • changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; or • business interruptions resulting from global geopolitical tensions, including the ongoing war between Russia and Ukraine and war in Israel, any other war or the perception that hostilities may be imminent, including terrorism, natural disasters or public health crises.
Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly. 28 Table of Contents Preclinical studies and clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes.
Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly. Preclinical studies and clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes.
Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to 32 Table of Contents be significant competitors, particularly through collaborative arrangements with large and established companies.
Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Further, clinical endpoints for certain diseases we are targeting, such as Angelman syndrome, have not been established, and accordingly we may have to develop new modalities or modify existing endpoints to measure efficacy, which may increase the time it takes for us to commence or complete clinical trials.
Further, clinical endpoints for certain diseases we are targeting, such as CCM, have not been established, and accordingly we may have to develop new modalities or modify existing endpoints to measure efficacy, which may increase the time it takes for us to commence or complete clinical trials.
We have no drugs approved for commercialization and have never generated any revenue from drug sales. Most of our drug candidates are still in the preclinical testing stage. It could be several years, if ever, before we have a 23 Table of Contents commercialized drug.
We have no drugs approved for commercialization and have never generated any revenue from drug sales. Most of our drug candidates are still in the preclinical testing stage. It could be several years, if ever, before we have a commercialized drug.
For example, in May 2016, the EU formally adopted the General Data Protection Regulation, or GDPR, which applies to all EU member states as of May 25, 2018 and replaces the former EU Data Protection Directive. The regulation introduces new data protection requirements in the EU and imposes substantial fines for breaches of the data protection rules.
For example, in May 2016, the EU formally adopted the General Data Protection Regulation (“GDPR”), which applies to all EU member states as of May 25, 2018 and replaces the former EU Data Protection Directive. The regulation introduces new data protection requirements in the EU and imposes substantial fines for breaches of the data protection rules.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise 55 Table of Contents receive a premium for your shares.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares.
Further, we, the FDA or an IRB may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements, including the FDA’s current Good Clinical Practice (“GCP”) regulations, that we are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our IND applications or the conduct of these trials.
Further, we, the FDA or an IRB may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements, including the FDA’s current GCP regulations, that we are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our IND applications or the conduct of these trials.
Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks.
High interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks.
Obtaining foreign 33 Table of Contents regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our current and future drug candidates in certain countries.
Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our current and future drug candidates in certain countries.
We have also outsourced elements of our operations (including elements of our information technology infrastructure) to third parties, and as a result, we manage a number of third-party vendors who may or could have access to our computer networks or our confidential information.
We have also outsourced elements of our operations (including elements of our information technology infrastructure) to third parties, and as a result, we manage a number of third-party vendors who may or could have access to our computer networks or our sensitive data.
Department of Health and Human Services ("HHS") released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions 40 Table of Contents HHS can take to advance these principles.
Department of Health and Human Services (“HHS”) released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles.
If we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or drug candidates, or 54 Table of Contents grant licenses on terms that may not be favorable to us.
If we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us.
Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not 48 Table of Contents encounter challenges or delays in the future or that these delays or challenges will not have a negative impact on our business, financial condition and prospects.
Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a negative impact on our business, financial condition and prospects.
These drugs may 46 Table of Contents compete with our drugs in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
These drugs may compete with our drugs in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Risks Related to Regulatory Compliance Our relationships with customers, physicians, and third-party payors may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other 37 Table of Contents healthcare laws and regulations.
Risks Related to Regulatory Compliance Our relationships with customers, physicians, and third-party payors may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations.
Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. We may need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations. As of December 31, 2022, we had 44 full-time employees.
Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. 51 We may need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations. As of December 31, 2023, we had 40 full-time employees.
Even if patents do successfully issue and even if such patents cover our current or any future drug candidates, third parties may challenge their 42 Table of Contents validity, enforceability or scope, which may result in such patents being narrowed, invalidated, or held unenforceable.
Even if patents do successfully issue and even if such patents cover our current or any future drug candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated, or held unenforceable.
Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implemented security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or security incidents.
Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implemented security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such measures will be effective.
As of December 31, 2022, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.
As of December 31, 2023, we had $250.0 million available under our Current S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.
On June 17, 2021 the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Further, there have been a number of health reform measures by the Biden administration that have impacted the PPACA.
Supreme Court dismissed a challenge on procedural grounds that argued the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Further, there have been a number of health reform measures by the Biden administration that have impacted the PPACA.
Moreover, we may be subject to a third-party pre-issuance submission of prior art to the U.S. Patent and Trademark Office ("the USPTO") or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others.
Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others.
As of December 31, 2022, we had an accumulated deficit of $225.5 million. We expect to continue to incur increasing operating losses for the foreseeable future. Since inception, we have devoted substantially all of our efforts to research and preclinical and clinical development of our drug candidates, as well as hiring employees and building our infrastructure.
As of December 31, 2023, we had an accumulated deficit of $277.9 million. We expect to continue to incur increasing operating losses for the foreseeable future. Since inception, we have devoted substantially all of our efforts to research and preclinical and clinical development of our drug candidates, as well as hiring employees and building our infrastructure.
Risks Related to Our Financial Position and Need for Additional Capital We expect to continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability. We have historically incurred significant operating losses. Our net loss was $54.2 million for the year ended December 31, 2022.
Risks Related to Our Financial Position and Need for Additional Capital We expect to continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability. We have historically incurred significant operating losses. Our net loss was $52.3 million for the year ended December 31, 2023.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeMine Safety Disclosures Not applicable. 57 Table of Contents PART II
Biggest changeMine Safety Disclosures Not applicable. 61 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAny future determination to pay dividends will be made at the discretion of our board of directors and will depend on then-existing conditions, including our financial conditions, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. 58 Table of Contents Recent Sales of Unregistered Securities None. Item 6. [Reserved]
Biggest changeAny future determination to pay dividends will be made at the discretion of our board of directors and will depend on then-existing conditions, including our financial conditions, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Recent Sales of Unregistered Securities None. 62 Item 6. [Reserved]
Certain shares are held in “street name" and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Certain shares are held in “street name” and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
The following graph shows a comparison from December 31, 2017 through December 31, 2022, of the cumulative total return for our common stock, the Nasdaq Composite Index, and the Nasdaq Biotechnology Index. The graph assumes an initial investment of $100 on December 31, 2017.
The following graph shows a comparison from December 31, 2018 through December 31, 2023, of the cumulative total return for our common stock, the Nasdaq Composite Index and the Nasdaq Biotechnology Index. The graph assumes an initial investment of $100 on December 31, 2018.
The comparisons in the graph are not intended to forecast or be indicative of possible future performance of our common stock. Holders of Record As of March 10, 2023, we had approximately 13 holders of record of our common stock.
The comparisons in the graph are not intended to forecast or be indicative of possible future performance of our common stock. Holders of Record As of March 5, 2024, we had approximately 14 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese reclassifications had no effect on the reported results of operations. 61 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 The following table summarizes the results of our operations for the periods indicated: Year Ended December 31, 2022 Year Ended December 31, 2021 Change $ (in thousands) Revenue: License and other revenue $ 1,503 $ 12,383 $ (10,880) License revenue - related party — 196,000 (196,000) Total revenue 1,503 208,383 (206,880) Operating expenses: Research and development 24,618 46,940 (22,322) General and administrative 32,433 37,234 (4,410) Total operating expenses 57,051 84,174 (26,732) (Loss) income from operations (55,548) 124,209 (180,148) Other income (expense), net 1,379 (46) 1,425 (Loss) income before provision for income taxes (54,169) 124,163 (178,723) Provision for income taxes — 1,329 (1,329) Net (loss) income $ (54,169) $ 122,834 $ (177,394) Revenue Revenue of $1.5 million for the year ended December 31, 2022 related to licensing and other agreements.
Biggest changeOther Income (Expense), net Other income (expense), net, consists primarily of interest income and accretion of discount on short-term investments and unrealized gains/losses on long-term equity investments. 65 Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table summarizes the results of our operations for the periods indicated: Year Ended December 31, 2023 Year Ended December 31, 2022 Change $ (in thousands) Revenue: License and other revenue $ 392 $ 1,503 $ (1,111) Total revenue 392 1,503 (1,111) Operating expenses: Research and development 28,588 24,618 3,970 General and administrative 31,085 32,433 (1,348) Total operating expenses 59,673 57,051 2,622 Loss from operations (59,281) (55,548) (3,733) Other income (expense), net 6,943 1,379 5,563 Loss before provision for income taxes (52,339) (54,169) 1,830 Provision for income taxes — — — Net loss $ (52,339) $ (54,169) $ 1,830 Revenue Revenue of $0.4 million was recognized for the year ended December 31, 2023 related to royalties.
For additional information see Note 5 to our consolidated financial statements under the heading 'Leases.' We have no products approved for commercial sale and have not generated any product revenues from product sales to date.
For additional information see Note 5 to our consolidated financial statements under the heading 'Leases.' We have no products approved for commercial sale and have not generated any revenues from product sales to date.
To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and marketable securities in institutional market funds that are comprised of U.S. Treasury and U.S. Treasury-backed repurchase agreements as well as treasury notes and high quality short-term corporate bonds.
To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and marketable securities in institutional market funds that are comprised of U.S. Treasury and U.S. Treasury-backed repurchase agreements as well as treasury notes and high quality short-term corporate bonds. 70
We have not generated any revenue from commercial drug sales and we do not expect to generate any further revenue unless or until we obtain regulatory approval and commercialize one or more of our current or future drug candidates or if we become entitled to revenue from our licensing agreements.
We have not generated any revenue from commercial drug sales and we do not expect to generate any revenue from commercial drug sales unless or until we obtain regulatory approval and commercialize one or more of our current or future drug candidates, or if we become entitled to revenue from our licensing agreements.
Critical Accounting Estimates and Policies Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Critical Accounting Estimates and Policies Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
We cannot estimate whether we will receive or the timing of any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property as contractual obligations or commitments, including agreements with AstraZeneca AB and Northwestern.
We cannot estimate whether we will receive or the timing of any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property as contractual obligations or commitments, including agreements with AstraZeneca, Gensaic and Northwestern.
We believe that our cash, cash equivalents and marketable securities as of December 31, 2022 will fund our projected operating expenses and capital expenditure requirements for at least 12 months from the issuance of this Annual Report on Form 10-K. Similar to other development-stage biotechnology companies, we have generated limited revenue.
We believe that our cash, cash equivalents and marketable securities as of December 31, 2023 will fund our projected operating expenses and capital expenditure requirements for at least 12 months from the issuance of this Annual Report on Form 10-K. Similar to other development-stage biotechnology companies, we have generated limited revenue.
Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates remain high or begin to rise again) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, the global geopolitical tension as a result of the ongoing war between Russia and Ukraine, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital resources.
Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates remain high or begin to rise again) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, global geopolitical tensions as a result of the ongoing war between Russia and Ukraine and the war in Israel, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital resources.
General and Administrative Expenses General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation expense, related to our executive, finance, business development and support functions. Other general and administrative expenses include costs associated with operating as a public company described below, travel expenses, conferences, professional fees for auditing, tax and legal services and facility-related costs.
General and Administrative Expenses General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation expense, related to our executive, finance, business development and support functions. Other general and administrative expenses include costs associated with operating as a public company, travel expenses, conferences, professional fees for auditing, tax and legal services and facility-related costs.
Rising interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Furthermore, economic conditions have produced downward pressure on share prices.
High interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Furthermore, economic conditions have produced downward pressure on share prices.
We expect our expenses will increase substantially over time as we: • continue the ongoing and planned preclinical and clinical development of our drug candidates; • build a portfolio of drug candidates through the development, acquisition or in-license of drugs, drug candidates or technologies; • initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future; • seek marketing approvals for our current and future drug candidates that successfully complete clinical trials; 59 Table of Contents • establish a sales, marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval; • develop, maintain, expand and protect our intellectual property portfolio; • implement operational, financial and management systems; and • attract, hire and retain additional administrative, clinical, regulatory, manufacturing, commercial and scientific personnel.
We expect our expenses will increase substantially over time as we: • continue the ongoing and planned preclinical and clinical development of our drug candidates; • build a portfolio of drug candidates through the development, acquisition or in-license of drugs, drug candidates or technologies; • initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future; • seek marketing approvals for our current and future drug candidates that successfully complete clinical trials; • establish a sales, marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval; • develop, maintain, expand and protect our intellectual property portfolio; 63 • implement operational, financial and management systems; and • attract, hire and retain additional administrative, clinical, regulatory, manufacturing, commercial and scientific personnel.
We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources.
On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources.
Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts and the development of our product candidates, which include, among other things: • employee-related expenses, including salaries, benefits and stock-based compensation expense; • fees paid to consultants for services directly related to our drug development and regulatory effort; • expenses incurred under agreements with contract research organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials; • costs associated with preclinical activities and development activities; • costs associated with technology and intellectual property licenses; • milestone payments and other costs and payments under licensing agreements, research agreements and collaboration agreements; and • depreciation expense for assets used in research and development activities. 60 Table of Contents Costs incurred in connection with research and development activities are expensed as incurred.
Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts and the development of our product candidates, which include, among other things: • employee-related expenses, including salaries, benefits and stock-based compensation expense; • fees paid to consultants for services directly related to our drug development and regulatory effort; • expenses incurred under agreements with contract research organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials; • costs associated with preclinical activities and development activities; • costs associated with technology and intellectual property licenses; • milestone payments and other costs and payments under licensing agreements, research agreements and collaboration agreements; and • depreciation expense for assets used in research and development activities.
We have elected to adopt the accommodations available to smaller reporting companies, including but not limited to: • reduced disclosure obligations regarding executive compensation arrangements; and • being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure. 66 Table of Contents Item 7A .
We have elected to adopt the accommodations available to smaller reporting companies, including but not limited to: • reduced disclosure obligations regarding executive compensation arrangements; and • being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure.
Significant Risks and Uncertainties The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with public health crises and the ongoing war between Russia and Ukraine may have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Significant Risks and Uncertainties The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with public health crises and global geopolitical tensions, like the ongoing war between Russia and Ukraine and the war in Israel, may have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy. See "Risk Factors" for additional risks associated with our capital requirements.
Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy. See “Risk Factors” for additional risks associated with our capital requirements.
In addition, the U.S. Federal Reserve has raised, and is expected to further raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks.
In addition, the U.S. Federal Reserve has raised interest rates in response to concerns about inflation. High interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks.
Pursuant to these license 63 Table of Contents agreements, we have agreed to make milestone payments up to an aggregate of $279.3 million upon the achievement of certain development, regulatory and sales milestones.
Pursuant to these license agreements, we have agreed to make milestone payments up to an aggregate of $660.3 million upon the achievement of certain development, regulatory and sales milestones.
Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. 65 Table of Contents Revenue Recognition We recognize revenue under sublicense agreements in accordance with ASC 606, Revenue Recognition, which is applicable to the Angelini License Agreement and the RLT Agreement.
Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. 69 Revenue Recognition We recognize revenue under sublicense agreements in accordance with ASC 606, Revenue Recognition, which is applicable to the RLT Agreement.
Additionally, while the long-term economic impact of either the COVID-19 pandemic or the conflict between Russia and Ukraine is difficult to assess or predict, each of these events has caused significant disruptions to the global financial markets and contributed to a general global economic slowdown. Furthermore, inflation rates have increased recently to levels not seen in decades.
Additionally, while the long-term economic impact of geopolitical tensions, including the war between Russia and Ukraine and war in Israel, is difficult to assess or predict, each of these events has caused significant disruptions to the global financial markets and contributed to a general global economic slowdown. Furthermore, inflation rates have increased recently to levels not seen in decades.
Our team has significant experience and understanding of rare epilepsies and seizure-related neurological conditions, and we continue to build insight into the way the different molecular mechanisms and pathways underlying these disorders impact the symptoms patients suffer.
Our team has significant experience with and understanding of rare epilepsies and neurological conditions, and we continue to gain insight into the ways the different molecular mechanisms and pathways underlying these disorders impact the symptoms patients suffer.
At-the-Market Offering Program In November 2020, we filed a shelf registration statement on Form S-3 (Registration No. 333-250054) that allows us to sell up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities and/or warrants (the “S-3 Registration Statement”), which includes a prospectus covering the issuance and sale of up to $75.0 million of common stock pursuant to an at-the-market (“ATM”) offering program.
In November 2023, upon expiration of the of the Prior Registration Statement, we filed a new shelf registration statement on Form S-3 (Registration No. 333-275307) that allows us to sell up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities and/or warrants (the “Current S-3 Registration Statement”), which includes a prospectus covering the issuance and sale of up to $75.0 million of common stock pursuant to an at-the-market (“ATM”) offering program, including the unsold securities under the Prior Registration Statement.
Financial Operations Overview Revenue We generated revenue under the RLT Agreement and under the Angelini License Agreement, as well as nominal amounts from other licensing agreements.
Financial Operations Overview Revenue We have generated revenue primarily under the RLT Agreement, as well as nominal amounts from other licensing agreements and royalties.
Quantitative and Qualitative Disclosures About Market Risk. The primary objectives of our investment activities are to ensure liquidity and to preserve capital. As of December 31, 2022, we had cash, cash equivalents and marketable securities of $129.0 million.
Item 7A . Quantitative and Qualitative Disclosures About Market Risk The primary objectives of our investment activities are to ensure liquidity and to preserve capital. As of December 31, 2023, we had cash, cash equivalents and marketable securities of $105.8 million.
As of December 31, 2022, we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis.
As of December 31, 2023, we had no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis.
Payment obligations under the lease agreement include approximately $1.7 million in the 12 months subsequent to December 31, 2022 and approximately $23.5 million over the term of the agreement.
Payment obligations under the lease agreement include approximately $2.3 million in the 12 months subsequent to December 31, 2023 and approximately $23.5 million over the term of the agreement.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the revenue and expenses incurred during the reported periods.
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors. Research and development activities are and will continue to be central to our business model.
Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of 64 specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.
Net Cash Used in Investing Activities Net cash used in investing activities was $87.9 million for the year ended December 31, 2022, which was primarily related to our net investment in U.S. treasury funds and the purchase of a long-term equity investment.
Net Cash Used in Investing Activities Net cash used in investing activities was $2.6 million for the year ended December 31, 2023, which was primarily related to our purchases and sales/maturities of investments in U.S. treasury funds and the purchase of a long-term equity investment.
The decrease of $4.4 million was primarily due to reduced legal and professional fees, partially offset by an increase in non-cash compensation expenses, and increased expenses related to the new office lease.
The decrease of $1.3 million was primarily due to reduced legal and professional fees and general office expenses, partially offset by an increase in non-cash compensation expenses.
During the year ended December 31, 2022, we recognized revenue of approximately $1.5 million related to licensing agreements we entered into during the period. Research and Development Accrual When preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses.
During the year ended December 31, 2023, we recognized revenue of approximately $0.4 million related to royalty agreements. Research and Development Accrual When preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses.
As of December 31, 2022, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program. 64 Table of Contents Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2022 Year Ended December 31, 2021 (in thousands) Net cash (used in) provided by: Operating activities $ (55,170) $ 118,612 Investing activities (87,940) (1,821) Financing activities 181 904 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (142,930) $ 117,694 Net Cash (Used in) Provided by Operating Activities Net cash used in operating activities was $55.2 million for the year ended December 31, 2022, which consisted of net loss of $54.2 million offset by a net of $1.0 million of various non-cash charges and operating cash changes, most significantly $6.6 million in stock-based compensation and an $8.3 million decrease in accounts payable and accrued expenses.
As of December 31, 2023, we had $250.0 million available under our Current S-3 Registration Statement, including $75.0 million available pursuant to our ATM program. 68 Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2023 Year Ended December 31, 2022 (in thousands) Net cash (used in) provided by: Operating activities $ (45,781) $ (55,170) Investing activities (2,581) (87,940) Financing activities 30,535 181 Net decrease in cash, cash equivalents, and restricted cash $ (17,827) $ (142,930) Net Cash Used in Operating Activities Net cash used in operating activities was $45.8 million for the year ended December 31, 2023, which consisted of net loss of $52.3 million offset by a net of $6.6 million of various non-cash charges and operating cash changes, most significantly $7.3 million in stock-based compensation.
It is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct.
The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct.
Net Cash Provided by Financing Activities Net cash provided by financing activities of $0.2 million and $0.9 million for the years ended December 31, 2022 and 2021, respectively, primarily related to proceeds from the exercise of options and purchases made under the employee stock purchase plan.
For the same period in 2022, cash provided by financing activities was $0.2 million, related to proceeds from the exercise of options and purchases made under the employee stock purchase plan.
Rent payments commenced January 10, 2023, and will continue for ten years following the rent commencement date. We issued a letter of credit in the amount of $1.9 million in association with the execution of the lease agreement, which is reflected as restricted cash on the consolidated balance sheets.
We issued a letter of credit in the amount of $1.9 million in association with the execution of the lease agreement, which is reflected as restricted cash on the consolidated balance sheets.
Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities.
The valuation allowance was approximately $73.7 million and $63.3 million at December 31, 2022 and 2021, respectively. Liquidity and Capital Resources Overview As of December 31, 2022, we had total cash, cash equivalents and marketable securities of $129.0 million as compared to $187.8 million of cash and cash equivalents as of December 31, 2021.
Liquidity and Capital Resources Overview As of December 31, 2023 and 2022, we had total cash, cash equivalents and marketable securities of $105.8 million and $129.0 million, respectively.
We expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming.
Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug candidates through preclinical studies and clinical trials.
Future Funding Requirements We believe that our available cash, cash equivalents and marketable securities are sufficient to fund existing and planned cash requirements into the first quarter of 2025.
As of December 31, 2023, we had an accumulated deficit of $277.9 million and working capital of $98.1 million. Future Funding Requirements We believe that our available cash, cash equivalents and marketable securities are sufficient to fund existing and planned cash requirements into the first half of 2026.
Research and Development Expenses Year Ended December 31, 2022 Year Ended December 31, 2021 Change $ (in thousands) Preclinical and development expenses $ 9,715 $ 30,386 $ (20,671) Payroll and payroll-related expenses 11,498 13,454 (1,956) Other expenses 3,405 3,101 304 Total research and development $ 24,618 $ 46,940 $ (22,322) Research and development expenses were $24.6 million for the year ended December 31, 2022 compared to $46.9 million for the year ended December 31, 2021.
Research and Development Expenses Year Ended December 31, 2023 Year Ended December 31, 2022 Change $ (in thousands) Preclinical and development expenses $ 14,605 $ 9,715 $ 4,883 Payroll and payroll-related expenses 10,541 11,498 (957) Other expenses 3,442 3,405 37 Total research and development $ 28,588 $ 24,618 $ 3,963 Research and development expenses were $28.6 million for the year ended December 31, 2023 compared to $24.6 million for the year ended December 31, 2022.
Revenue in the year ended December 31, 2021 was primarily due to a significant one-time, upfront payment from Takeda pursuant to the RLT Agreement. Otherwise, we have incurred losses and experienced negative operating cash flows in most years since our inception, and anticipate that we will continue to incur losses for at least the next several years.
We have incurred losses and experienced negative operating cash flows in most years since our inception and anticipate that we will continue to incur losses for at least the next several years. We incurred net losses of $52.3 million and $54.2 million for the years ended December 31, 2023 and 2022, respectively.
In September 2021, we entered into a 10-year lease agreement for our corporate headquarters with a term commencing March 10, 2022, for approximately 19,000 square feet of office space at Hudson Commons in New York, New York. The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently $2.3 million per year.
We excluded these contingent payments from the consolidated financial statements given that the timing, probability, and amount, if any, of such payments cannot be reasonably estimated at this time. 67 In September 2021, we entered into a 10-year lease agreement for our corporate headquarters with a term commencing March 10, 2022, for approximately 19,000 square feet of office space at Hudson Commons in New York, New York.
During the year ended December 31, 2021, research and development expenses consisted of $30.4 million in preclinical and development expenses, $13.5 million in payroll and payroll-related expenses, of which $1.7 million related to stock-based compensation, and $3.1 million in other expenses. 62 Table of Contents General and Administrative Expenses Year Ended December 31, 2022 Year Ended December 31, 2021 Change $ (in thousands) Payroll and payroll-related expenses $ 16,071 $ 14,008 $ 2,063 Legal and professional fees 9,253 17,071 (7,818) General office expenses 7,108 6,154 1,345 Total general and administrative $ 32,432 $ 37,234 $ (4,409) General and administrative expenses were $32.4 million for the year ended December 31, 2022 compared to $37.2 million for the year ended December 31, 2021.
The decrease of $1.0 million in payroll and payroll-related expenses was primarily due to the impact of a reorganization in early 2022 which resulted in approximately $1.0 million in severance costs during the period. 66 General and Administrative Expenses Year Ended December 31, 2023 Year Ended December 31, 2022 Change $ (in thousands) Payroll and payroll-related expenses $ 17,131 $ 16,071 $ 1,060 Legal and professional fees 7,610 9,253 (1,643) General office expenses 6,345 7,108 (763) Total general and administrative $ 31,085 $ 32,432 $ (1,347) General and administrative expenses were $31.1 million for the year ended December 31, 2023 compared to $32.4 million for the year ended December 31, 2022.
Ovid has set out to be a leader in the field, and has developed a differentiated pipeline containing three novel mechanisms of action to target different causes of epilepsies and seizures.
We have set out to be a leader in the field, and have developed a differentiated pipeline containing four novel mechanisms of action to target different causes of certain epilepsies and brain conditions with seizure symptoms. We have built a scalable scientific platform with efficient development capabilities in epilepsies and conditions with seizure symptoms that focuses on clear, clinical endpoints.
We incurred net losses of approximately $54.2 million and net income of approximately $122.8 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $225.5 million and working capital of $124.4 million.
As of December 31, 2023, we had $105.8 million in cash, cash equivalents and marketable securities. We recorded net loss of $52.3 million and $54.2 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $277.9 million.
Through December 31, 2022, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and common stock. As of December 31, 2022, we had $129.0 million in cash, cash equivalents and marketable securities.
We have otherwise primarily funded our business through the sale of our capital stock and through the closing of the RLT Agreement with Takeda, which resulted in a one-time up-front payment of $196.0 million in 2021. Through December 31, 2023, we have raised net proceeds of $275.4 million from the sale of our convertible preferred and common stock.
Our cohesive focus in epilepsies and seizures reinforces our belief that we can develop and produce multiple novel medicines, scale our infrastructure, and thereby succeed in our mission. Since our inception in April 2014, we have devoted substantially all of our efforts to organizing and planning our business, building our management and technical team, acquiring operating assets and raising capital.
Since our inception in April 2014, we have devoted substantially all of our efforts to organizing and planning our business, building our management and technical team, acquiring operating assets and raising capital. During the years ended December 31, 2023 and 2022, we generated $0.4 million and $1.5 million of royalty and licensing revenue, respectively.
For the year ended December 31, 2021, $1.8 million was used in investing activities, primarily comprised of the purchase of a long-term equity investment.
For the year ended December 31, 2022, $87.9 million was used in investing activities, primarily comprised of purchases and sales/maturities of investments in U.S. treasury funds.
We are initially pursuing therapeutic assets for rare disorders as they can leverage accelerated development programs. If successfully developed and marketed in rare conditions, we intend to explore these assets for broader neurologic indications.
Three of our programs are in clinical trials in humans, and the fourth is in preclinical development and anticipated to advance into human safety studies in 2024. We are initially pursuing therapeutic assets for rare disorders as they can leverage accelerated development programs.
Net cash provided by operating activities was $118.6 million for the year ended December 31, 2021, which consisted of net income of $122.8 million offset by various non-cash charges and cash changes, primarily related to $12.3 million related to an asset acquisition via stock issuance and cash, stock-based compensation expense of $5.0 million, and $12.4 million of deferred revenue reversal.
Net cash used in operating activities was $55.2 million for the year ended December 31, 2022, which consisted of net loss of $54.2 million and $8.3 million decrease in accounts payable and accrued expenses, partially offset by various non-cash charges and cash changes.
Please also see the section entitled “Special Note Regarding Forward-Looking Statements.” Overview We are a biopharmaceutical company focused on drug discovery and development for epilepsies and rare CNS disorders in a manner that is scientifically driven, patient focused, and is coupled with an integrated and disciplined approach to research, clinical development and business development.
Please also see the section entitled “Special Note Regarding Forward-Looking Statements.” Overview We are a biopharmaceutical company dedicated to meaningfully improving the lives of people affected by certain epilepsies and brain conditions with seizure symptoms.
During the year ended December 31, 2022, research and development expenses consisted of $9.7 million in preclinical and development expenses, $11.5 million in payroll and payroll-related expenses, of which $1.8 million related to stock-based compensation, and $3.4 million in other expenses.
Revenue was $1.5 million for the year ended December 31, 2022 related to licensing and other agreements.
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Our knowledge of epilepsy disease biology and pathology, which was acquired through our small molecule development programs, now contributes to our pursuit of additional relevant genetic targets and molecular pathways that are the cause of seizures. Over time, we have built a scalable scientific platform and efficient development capabilities in epilepsies that focus on clear, clinical endpoints.
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Our approach to achieve this goal is scientifically driven, patient focused, and coupled with an integrated and disciplined approach to research, clinical development and business development.
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During the years ended December 31, 2022 and 2021, we generated $1.5 million and $208.4 million of license and other revenue, respectively. The revenue generated in the year ended December 31, 2021 was primarily through the license and collaboration agreement with Takeda. We have otherwise funded our business primarily through the sale of our capital stock.
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If successfully developed and marketed in rare conditions, we intend to explore these assets for broader neurologic indications. Our cohesive focus in certain epilepsies and brain conditions with seizure symptoms reinforces our belief that we can develop and produce multiple novel medicines, scale our infrastructure, and thereby succeed in our mission.
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We recorded a net loss of $54.2 million and net income of $122.8 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $225.5 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.
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The increase of $4.9 million in preclinical and development expenses was due to additional activities related to our ongoing development programs, primarily relating to OV888 (GV101) and OV329.
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Other Income (Expense), net Other income (expense), net consists primarily of interest income earned on our cash, cash equivalents and marketable securities and accretion of discount on our short-term investments. Reclassifications Certain prior period amounts have been reclassified for consistency with the current period presentation.
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Other Income (Expense), net Other income (expense), net was $6.9 million for the year ended December 31, 2023, comprised of $4.9 million in interest and accretion income on investments in U.S. treasuries and $2.0 million of unrealized gain on long-term equity investments.
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Revenue was $208.4 million for the year ended December 31, 2021 as a result of the RLT Agreement and the termination of the Angelini License Agreement.
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For the year ended December 31, 2022, other income (expense), net of $1.4 million was comprised of $1.8 million in interest and accretion income on investments in U.S. treasuries and $0.4 million of unrealized loss on long-term equity investments.
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The decrease of $22.3 million was primarily due to a decrease in activities related to our ongoing development programs, including the termination of the development of OV101 and the transfer of the development of OV935, which was assumed by Takeda, partially offset by $12.3 million in expenses relating to the licensing of small molecule KCC2 compounds from AstraZeneca in 2021.
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The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently $2.3 million per year. Rent payments commenced January 10, 2023, and will continue for ten years following the rent commencement date.
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Income Taxes The provision recorded for income taxes for the years ended December 31, 2022 and 2021 is zero and $1.3 million, respectively, with effective rates of 0.00% and 1.07%, respectively.
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At-the-Market Offering Program In November 2020, we filed a shelf registration statement on Form S-3 (Registration No. 333-250054) (the “Prior S-3 Registration Statement”).
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The provision for income taxes in 2021 was due to the significant one-time, upfront payment from Takeda pursuant to the RLT Agreement, as well as disallowed use of net operating losses. We have historically incurred operating losses and maintain a full valuation allowance against net deferred tax assets.
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During the years ended December 31, 2023 and 2022, we did not sell any shares under our ATM program.
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We excluded these contingent payments from the consolidated financial statements given that the timing, probability, and amount, if any, of such payments cannot be reasonably estimated at this time.
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Net Cash Provided by Financing Activities Net cash provided by financing activities was $30.5 million for the year ended December 31, 2023, which was primarily due to the $30.0 million received in connection with the Ligand Agreement.
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For the RLT Agreement that closed on March 29, 2021, we received an upfront payment of $196.0 million. We determined that the transaction price was equal to the upfront fee of $196.0 million and was associated with several material conditions that were satisfied at the closing date.
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We recognized the full upfront payment of $196.0 million as revenue at the closing date upon the satisfaction of the material conditions outlined in the termination agreement. On March 29, 2021, we received a notice of termination of the Angelini License Agreement.
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Subsequently, we and Angelini mutually agreed to waive the six-month termination notice provisions and the Angelini License Agreement terminated effective March 31, 2021. We have been released from our performance obligations and will not be entitled to any future milestone payments under the Angelini License Agreement.
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As a result of being released from the performance obligations, we recognized $12.4 million of revenue at the termination date, consisting of $5.4 million of license revenue related to ongoing trials and $7.0 million related to the potential 35% funding of the cost for Angelini's future trials.

Other OVID 10-K year-over-year comparisons