What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-10 · 150 added, 109 removed, 362 unchanged (42% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

Current assets:

12 unchanged sentences

Stockholders’ equity:

Preferred stock, $ 0.0001 par value per share ( 10,000,000 shares authorized, none issued and outstanding at June 30, 2020 and December 31, 2019, respectively)

Common stock, $ 0.0001 par value per share ( 150,000,000 shares authorized, 37,267,510 and 36,933,217 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively)

Preferred stock, $ 0.0001 par value per share ( 10,000,000 shares authorized, none issued and outstanding at September 30, 2020 and December 31, 2019, respectively)

Common stock, $ 0.0001 par value per share ( 150,000,000 shares authorized, 37,344,201 and 36,933,217 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively)

Additional paid-in capital

8 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Operating expenses:

9 unchanged sentences

( 1,091,849 )

Loss on extinguishment of debt

( 1,247,012 )

1 unchanged sentence

( 22,924,815 )

( 19,135,612 )

( 73,735,953 )

( 43,538,202 )

Net loss per common share, basic and diluted

24 unchanged sentences

( 131,952,897 )

Stock-based compensation

Issuance of common stock upon exercise of options

Issuance of common stock upon exercise of warrants

( 19,135,612 )

Balance at September 30, 2019

( 151,088,509 )

Balance at December 31, 2019

15 unchanged sentences

( 226,706,631 )

Stock-based compensation

Issuance of common stock upon exercise of options

Issuance of common stock upon exercise of warrants

Issuance of warrants upon debt financing

( 22,924,815 )

Balance at September 30, 2020

( 249,631,446 )

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

1 unchanged sentence

Consolidated Statements of Cash Flows

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities

5 unchanged sentences

Amortization of debt discount

Loss on extinguishment of debt

Changes in operating assets and liabilities:

1 unchanged sentence

Accounts payable

( 1,580,100 )

Accrued expenses and other current liabilities

9 unchanged sentences

Proceeds from issuance of term loan

Payment of debt financing costs

( 1,102,609 )

Repayment of principal on term loan

( 21,660,000 )

( 7,238,889 )

Proceeds from issuance of common stock upon exercise of options

9 unchanged sentences

Issuance of warrants in connection with debt financing

Shares of common stock issued in connection with license agreement with Pfizer, Inc.

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

14 unchanged sentences

In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which are normal recurring adjustments, necessary for the fair presentation of the financial information for the interim periods.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period.

Liquidity and Capital Resources

The Company has incurred operating losses since its inception, and expects to continue to incur operating losses for the foreseeable future and may never become profitable.

As of June 30, 2020, the Company had an accumulated deficit of $ 226.7 million.

As of September 30, 2020, the Company had an accumulated deficit of $ 249.6 million.

The Company’s primary sources of cash have been proceeds from the issuance and sale of its common stock in public offerings.

51 unchanged sentences

The Company’s cash equivalents, which are money market funds held in a sweep account, are measured at fair value on a recurring basis.

As of June 30, 2020, the balance of cash and cash equivalents was $ 190.7 million, which approximates fair value and was determined based upon Level 1 inputs.

As of September 30, 2020, the balance of cash and cash equivalents was $ 202.4 million, which approximates fair value and was determined based upon Level 1 inputs.

The sweep account is valued using quoted market prices with no valuation adjustments applied.

3 unchanged sentences

The Company maintains its cash at financial institutions, which at times, exceed federally insured limits.

At June 30, 2020, the majority of the Company’s cash was held by one financial institution and the amount on deposit was in excess of Federal Deposit Insurance Corporation insurance limits.

At September 30, 2020, the majority of the Company’s cash was held by one financial institution and the amount on deposit was in excess of Federal Deposit Insurance Corporation insurance limits.

The Company has not recognized any losses from credit risks on such accounts since inception.

13 unchanged sentences

The carrying values for cash, accounts payable and accrued liabilities reported in the accompanying consolidated financial statements approximate their respective fair values due to their short-term maturities.

The carrying value of debt, the 2019 Term Loan (see Note 4 – Loan and Security Agreement), is estimated to approximate its fair value as the interest rate approximates the market rate for loans with similar terms and risk characteristics.

The carrying value of debt on the Company’s balance sheet, the Hercules Term Loan (see Note 4 – Loan and Security Agreement), is estimated to approximate its fair value as the interest rate approximates the market rate for loans with similar terms and risk characteristics.

Debt Issuance Costs

22 unchanged sentences

Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company estimates an annual effective tax rate of 0 % for the year ending December 31, 2020 and has not recorded an income tax benefit for the six months ended June 30, 2020 and 2019 since it determined that a full valuation allowance is required against the Company’s deferred tax assets.

The Company estimates an annual effective tax rate of 0 % for the year ending December 31, 2020 and has not recorded an income tax benefit for the nine months ended September 30, 2020 and 2019 since it determined that a full valuation allowance is required against the Company’s deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position as well as consideration of the available facts and circumstances.

When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized.

As of June 30, 2020, the Company does not believe any material uncertain tax positions are present.

As of September 30, 2020, the Company does not believe any material uncertain tax positions are present.

In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of income tax expense.

15 unchanged sentences

Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, stock options, and RSUs, which would result in the issuance of incremental shares of common stock.

As the impact of these items is anti-dilutive during periods of net loss, there was no difference between basic and diluted net loss per share of common stock for the three and six months ended June 30, 2020 and 2019.

As the impact of these items is anti-dilutive during periods of net loss, there was no difference between basic and diluted net loss per share of common stock for the three and nine months ended September 30, 2020 and 2019.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU 2019-12) enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

Simplifying the Accounting for Income Taxes, enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

ASU 2019-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020.

2 unchanged sentences

Accrued Expenses and Other Current Liabilities

At June 30, 2020 and December 31, 2019 accrued expenses and other current liabilities consisted of the following:

At September 30, 2020 and December 31, 2019 accrued expenses and other current liabilities consisted of the following:

September 30,

Research and development

1 unchanged sentence

Loan and Security Agreement

Current Term Loan

2019 Term Loan

In March 2019, the Company entered into a $ 24.0 million growth capital term loan facility (the “2019 Term Loan”) with Silicon Valley Bank (“SVB”) and WestRiver Innovation Lending Fund VIII, L.P.

Silicon Valley Bank

In November 2016, the Company entered into an initial term loan agreement with Silicon Valley Bank (“SVB”) for a total of $ 20.0 million (“2016 Original Term Loan”).

The three -tranche term loan consisted of an initial $ 10.0 million tranche funded upon closing, and the remaining tranches were not drawn upon as the Company did not achieve the conditional criteria to access the second and third tranches before the specified dates and the $ 10.0 million in additional term loan advances subsequently expired.

Therefore, the Company amended the 2016 Original Term Loan to provide an additional $ 4.0 million growth capital loan (“2016 Amended Term Loan”).

The Company’s obligations under the 2016 Amended Term Loan, along with the ability to draw down on the additional $ 4.0 million tranche, were considered to be performed and completed in connection with the establishment of the 2019 Term Loan (as defined below).

In March 2019, the Company entered into a $ 24.0 million growth capital term facility (the “2019 Term Loan”) with SVB and WestRiver Innovation Lending Fund VIII, L.P.

(“WestRiver”).

The two -tranche loan agreement consists of an initial $ 20.0 million tranche (the “Term A Loan Advance”), which was funded upon closing, with the remaining $ 4.0 million (the “Term B Loan Advance”) initially available to be drawn, at the Company’s option, subject to the achievement of positive data, on or prior to August 15, 2019 (which was extended to December 31, 2019, in connection with the First Amendment to the 2019 Term Loan, as discussed below), with respect to the Company’s Phase 2 clinical trial for AXS-12 in narcolepsy, sufficient to submit a Phase 3 protocol to FDA, provided that the Company has not received any objections from the FDA within thirty days after submission of such Phase 3 protocol (the “Milestone Event”).

A portion of the first tranche was used to satisfy the Company’s existing obligations under the 2016 Amended Term Loan (as defined below) with SVB, which consisted of $ 5.6 million in outstanding principal balance and $ 0.85 million as a final payment fee, and such obligations are considered to be fully repaid and performed.

The Term B Loan Advance of $ 4.0 million was not drawn down by the Company and has since expired.

The loan bears interest at an annual rate equal to the greater of (i) seven and one-half of one percent ( 7.50 %) and (ii) two percent ( 2 %) above the Prime Rate.

The loan advances mature in February 2023 and initially had an interest-only payment period of 12 months (which was extended to 18 months in connection with the First Amendment to the 2019 Term Loan, as discussed below), extendable to 18 months upon the drawing of the Term B Loan Advance (which is now extendable to 24 months as a result of the First Amendment to the 2019 Term Loan).

The Company did not draw down on the Term B Loan Advance, and therefore, the interest-only monthly payment period was not extended.

Principal payments coming due within twelve months have been classified as current liabilities in the accompanying balance sheet.

In addition, the Company was initially required to pay a final payment fee of 6.0 % of the principal amount extended on the date of repayment of the 2019 Term Loan (which was increased to 6.3 % in connection with the First Amendment to the 2019 Term Loan, as discussed below), which is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

The Company could initially prepay all, but not less than all, of the 2019 Term Loan, subject to a prepayment premium of 3.0 % of the outstanding principal if prepaid within one year of the effective date of the loan, 2.0 % of the outstanding principal if prepaid after the first anniversary of the effective date but on or prior to the second anniversary of the effective date, and 1.0 % of the outstanding principal if prepaid after the second anniversary of the effective date.

The 2019 Term Loan is collateralized by a security interest in all of the Company’s assets except intellectual property.

The Company’s intellectual property is subject to a negative pledge.

First Amendment to the 2019 Term Loan

On July 25, 2019 (the “First Amendment Effective Date”), the Company entered into the first amendment to the 2019 Term Loan (the “First Amendment to the 2019 Term Loan”).

Under the First Amendment to the 2019 Term Loan, the interest-only monthly payment period was extended to 18 months after the date of the 2019 Term Loan, which may be further extended to 24 months upon receipt by the Company of the Term B Loan Advance.

The Company’s ability to draw down the Term B Loan Advance was extended to December 31, 2019, subject to the Company’s achievement of the Milestone Event prior to or on December 31, 2019.

The Term B Loan Advance and the Term A Loan Advance (together, the “Loan Advances”) mature on February 1, 2023 (the “Maturity Date”).

Pursuant to the 2019 Term Loan, as amended by the First Amendment to the 2019 Term Loan, following the interest-only payment period, the Company will begin making monthly payments of principal in equal monthly installments for 30 consecutive months (provided, that, upon the occurrence of the Milestone Event, the repayment schedule will be decreased to 24 consecutive months) and monthly payments of interest, until the Maturity Date.

Interest will accrue on the unpaid principal balance of the outstanding Loan Advances at a floating per annum rate equal to the greater of (i) seven and one-half of one percent (7.50%) and (ii) two percent ( 2.0 %) above the prime rate.

The First Amendment to the 2019 Term Loan increased the final payment fee, payable upon the Company’s repayment of the Loan Advances from 6.0 % to 6.3 % of the original principal amount of the Loan Advances.

The Company may prepay all, but not less than all of the Loan Advances, subject to a prepayment fee of 3.0 % of any amount prepaid prior to the first anniversary of the First Amendment Effective Date, 2.0 % of the amount prepaid if the prepayment occurs after the first anniversary of the First Amendment Effective Date through and including the second anniversary of the First Amendment Effective Date, or 1.0 % of the amount prepaid if the prepayment occurs after the second anniversary of the First Amendment Effective Date, but prior to the Maturity Date.

These percentages are unchanged from the original 2019 Term Loan.

The Company evaluated whether the First Amendment to the 2019 Term Loan entered into in July 2019 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt – Modifications and Extinguishments .

As the present value of the cash flows under the terms of the First Amendment to the 2019 Term Loan is less than 10% different from the remaining cash flows under the terms of the 2019 Term Loan, the First Amendment to the 2019 Term Loan was accounted for as a debt modification.

Therefore, the unamortized balance of debt discount costs incurred in connection with 2019 Term Loan are being amortized through maturity in February 2023 utilizing the effective interest rate method.

Previous Term Loan

Prior to the 2019 Term Loan, the Company had a $ 20.0 million Term Loan Agreement with SVB which was executed in November 2016 (“2016 Original Term Loan”).

The three -tranche term loan consisted of an initial $ 10.0 million tranche triggered upon closing, with the remaining $ 10.0 million available to be drawn in two $ 5.0 million tranches , at the Company’s option, subject to the achievement of certain clinical and financial milestones.

The Company did not achieve the conditional criteria to access the second and third tranches before the specified dates and the $ 10.0 million in additional term loan advances subsequently expired.

The 2016 Original Term Loan bore interest at an annual rate equal to 4.50 % plus the prime rate, which is the greater of 3.50 % or the Wall Street Journal prime rate, and was payable monthly.

It was to mature in November 2020 and had an interest-only payment period until December 1, 2017, which was extendable to May 2018 upon the drawing of the second tranche.

Because the Company did not achieve the conditional criteria to access the second and third term advances before the specified dates, the $ 10.0 million in additional term loan advances expired and the Company began to repay principal in December 2017.

Following the interest-only payment period, the Company began making monthly payments of principal and interest and such payments would continue until the maturity date.

Principal payments coming due within twelve months had been classified as current liabilities in the accompanying balance sheet.

In addition to principal and interest payments under the 2016 Original Term Loan, the Company was required to pay a final payment fee of 8.5 % of the principal amount extended on the date of repayment of the 2016 Original Term Loan.

The Company accrued the final payment fee into interest expense using the effective interest rate method until the entry into the 2019 Term Loan in March 2019, at which time the Company paid SVB $ 0.85 million in satisfaction of all final payment fee liabilities due under the 2016 Original Term Loan.

The Company was permitted to prepay all, but not less than all, of the 2016 Original Term Loan subject to a prepayment premium of 3.0 % of the outstanding principal if prepaid within two years of the effective date of the loan, 2.0 % of the outstanding principal if prepaid during the third year of the loan, and 1.0 % of the outstanding principal if prepaid after the third year.

The 2016 Original Term Loan was collateralized by a security interest in all of the Company’s assets except intellectual property.

The Company’s intellectual property was subject to a negative pledge.

In November 2018, the Company amended the 2016 Original Term Loan with SVB to provide an additional $ 4.0 million growth capital loan.

The additional capital was available to be drawn on the amendment effective date which was November 26, 2018 through May 31, 2019, at the Company’s option, conditioned upon the achievement of a clinical milestone, which required the Company’s receipt of positive data of the Company’s Phase 2 clinical trial of AXS-12 for the treatment of narcolepsy, sufficient to submit a Phase 3 protocol to the FDA and to proceed to a Phase 3 trial (“2016 Amended Term Loan”).

The financial terms for this additional growth capital were more favorable than those of the 2016 Original Term Loan.

All other terms and conditions from the 2016 Original Term Loan agreement remained in place.

The additional $ 4.0 million growth capital loan had to be drawn by May 31, 2019 and would bear interest at an annual rate equal to the greater of the prime rate plus 2.00 %, or 7.25 %, if drawn.

The Company’s obligations under the 2016 Amended Term Loan, along with the ability of the Company to draw down on the additional $ 4.0 million tranche, were considered performed and completed in connection with the establishment of the 2019 Term Loan.

The Company evaluated whether the 2019 Term Loan entered into in March 2019 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt – Modifications and Extinguishments .

As the present value of the cash flows under the terms of the 2019 Term Loan is less than 10% different from the remaining cash flows under the terms of the 2016 Original Term Loan and the 2016 Amended Term Loan, the 2019 Term Loan was accounted for as a debt modification.

Since the borrowing capacity of the 2019 Term Loan is greater than the borrowing capacity from the 2016 Original Term Loan and the 2016 Amended Term Loan, the unamortized balance of debt discount costs incurred in connection with those loans and additional debt discount costs incurred in connection with entry into the 2019 Term Loan, are being amortized through maturity in February 2023 utilizing the effective interest rate method.

The 2019 Term Loan consisted of an initial $ 20.0 million tranche, which was funded upon closing, and a second tranche of $ 4.0 million, which was available to be drawn subject to completion of a clinical milestone prior to August 15, 2019.

A portion of the first tranche was used to satisfy the Company’s existing obligations under and fully extinguish the 2016 Amended Term Loan, which at the commencement of the 2019 Term Loan consisted of $ 5.6 million in outstanding principal balance and $ 0.85 million as a final payment fee.

The 2019 Term Loan was subsequently amended in July 2019 (the “First Amendment to the 2019 Term Loan”) to extend the interest-only monthly payment period for 18 months from the date of the 2019 Term Loan and the Company’s ability to draw down on the second tranche of $ 4.0 million was extended until December 31, 2019.

The second tranche of $ 4.0 million was not drawn down by the Company.

The 2019 Term Loan accrued interest at a fixed rate of 7.5 %.

Interest on the 2019 Term Loan and the First Amendment to the 2019 Term Loan was payable monthly beginning April 1, 2019 and principal was due starting on October 1, 2020.

In addition, the Company was required to make a final payment of $ 1.26 million on February 1, 2023, the maturity date of the 2019 Term Loan.

However, the Company subsequently entered into the 2020 Term Loan (as defined below), the proceeds of which were used in part to fully satisfy and extinguish the 2019 Term Loan, as amended.

In connection with the 2019 Term Loan, the Company issued SVB and WestRiver a warrant to purchase shares of common stock.

These warrants were fully exercised and no longer outstanding as of September 30, 2020 (see Note 6 – Stockholders’ Equity under “Warrants” section for further discussion).

In September 2020, the Company terminated and repaid all amounts outstanding under the 2019 Term Loan and recorded a loss on extinguishment of the loan (see further discussion below).

Hercules Capital, Inc.

In September 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc., in its capacity as administrative agent and collateral agent and as a lender (in such capacity, the “Agent” or “Hercules”) and the other financial institutions that from time to time become parties to the Loan Agreement as lenders (collectively, the “Lenders”).

The Loan Agreement provides for term loans in an aggregate principal amount of up to $ 225.0 million under multiple tranches (the “2020 Term Loan”).

The tranches consist of (i) a first tranche consisting of term loans in an aggregate principal amount of $ 60.0 million, of which $ 50.0 million was funded to the Company on the Closing Date (the “First Advance”), and of which the remaining $ 10.0 million is available at the Company’s option at any time through September 15, 2021;

(ii) subject to the approval of the Company’s AXS-05 product candidate for the treatment of major depressive disorder (the “First Milestone”), a second tranche consisting of additional term loans in an aggregate principal amount of up to $ 35.0 million, available at the Company’s option beginning on the date that the First Milestone is achieved through the earlier of (A) 181 days following such date and (B) June 30, 2022;

(iii) subject to the approval of the Company’s AXS-07 product candidate for the treatment of migraine (the “Second Milestone”), a third tranche consisting of additional term loans in an aggregate principal amount of up to $ 20.0 million, available at the Company’s option beginning on the date that the Second Milestone is achieved through the earlier of (A) 181 days following such date and (B) June 30, 2022;

(iv) subject to the achievement of either the First Milestone or the Second Milestone and so long as the Company is in compliance with a required ratio of Lender indebtedness to net product revenue, a fourth tranche consisting of additional term loans in an aggregate principal amount of up to $ 60.0 million, available at the Company’s option beginning on January 1, 2022 and continuing through March 31, 2023;

and (v) subject to approval by the Lenders’ in their discretion, a fifth tranche of additional term loans in an aggregate principal amount of up to $ 50.0 million, available through December 31, 2023.

The Company intends to use the proceeds of the Term Loan Advances for working capital and general corporate purposes.

In addition, approximately $ 21.5 million of the proceeds from the First Advance was used to satisfy in full and retire the Company’s indebtedness under the 2019 Term Loan, as amended.

The outstanding principal balance of the term loans bears interest at an annual rate equal to the greater of either (i) the prime rate as reported in The Wall Street Journal plus 5.90 % or (ii) 9.15 % , subject to an ability by the Company, during certain periods (each, a “PIK Deferral Period”), to request a reduction of the then-effective cash-pay interest rate by up to 1.00 % per annum (the “Cash Interest Reduction Amount”).

Accrued interest is payable monthly following the funding of each term loan.

During each PIK Deferral Period, the term loans will bear cash-pay interest, at the reduced amount, and will accrue paid-in-kind interest at a rate equal to the Cash Interest Reduction Amount multiplied by 1.15 , which amount will be capitalized and added to the outstanding principal balance of the term loans on each monthly interest payment date during the PIK Deferral Period.

The Company is required to repay the term loans in equal installments of principal and interest commencing on May 1, 2023 through October 1, 2025 (the “Maturity Date”).

However, if either the First Milestone or the Second Milestone are achieved prior to May 1, 2023, and no default exists, the amortization commencement date will be automatically extended to November 1, 2023;

if both the First Milestone and the Second Milestone are achieved prior to November 1, 2023, and no default exists, the amortization commencement date will be further automatically extended to May 1, 2024 and if any term loans are funded under the fourth tranche noted above prior to May 1, 2024, and no default exists, the amortization commencement date will be further automatically extended to November 1, 2024.

On the Maturity Date, all unpaid term loans will be due and payable.

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

Antecip consented to the collateral assignment of the License Agreement, among other things, under a direct agreement (the “Direct Agreement”) with the Company and Hercules.

T he Loan Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens (including a negative pledge on intellectual property and other assets), guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes.

At the initial closing, there were no applicable financial covenants contained in the Loan Agreement.

Only after additional amounts are drawn down by the Company in the future, if the Company decides to do so, under the terms set forth in the Loan Agreement, there will be certain limited financial covenants that will apply, including:

● E ffective upon the date the outstanding principal amount of the advances under the Loan Agreement equals or exceeds $ 55.0 million, which has not yet occurred, the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to $ 15.0 million, plus the amount of the Company’s accounts payable under U.S.

GAAP not paid after the 180 th day following the invoice for such account payable (such amount, the “Qualified Cash A/P Amount”).

● E ffective upon the later of (i) the last calendar month of the calendar quarter that is twelve months following the earlier of (x) the date that the First Milestone is achieved and (y) the date that the Second Milestone is achieved, or (ii) the date on which the outstanding principal amount of the term loan advances under the Loan Agreement is equal to or greater than $ 65.0 million, the Company is required to (A) ensure that at all times its market capitalization exceeds $ 2.0 billion, and that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 65 % of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, (B) ensure that at all times that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 100 % of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, or (C) achieve at least 60 % of the net product revenue solely from the sale of AXS-05 and AXS-07 (which may include royalty, profit sharing, or sales-based milestone revenue recognized in accordance with GAAP, but will not include any upfront or non-sales-based milestone payments under business development or licensing transactions), measured on a trailing six-month basis as of the date of the Company’s most recent quarterly financial statement, determined on a quarterly basis.

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

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

In addition, the Company is required to pay a final payment fee equal to the greater of (A) $ 2,910,000 and (B) 4.85 % of the aggregate amount of all term loan advances minus the aggregate amount of repayments made.

The final payment fee is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

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

The Company evaluated whether the Hercules Term Loan entered into in September 2020 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt – Modifications and Extinguishments .

As a result of the repayment and retirement of the SVB Loan, the loan was accounted for by the Company under the extinguishment accounting model.

The Company recorded a loss on extinguishment of debt of approximately $ 1.2 million on the Company’s statement of operations for the nine months ended September 30, 2020, representing a prepayment premium, the unamortized discount of the SVB Loan and the write-off of deferred financing costs.

Loan Interest Expense and Amortization

The Company incurred interest expense of $ 379,167 and $ 758,334 for the three and six months ended June 30, 2020, respectively, as compared to $ 379,166 and $ 595,833 for the three and six months ended June 30, 2019, respectively.

In addition, amortization of the final payment fee was $ 119,014 and $ 238,028 for the three and six months ended June 30, 2020, respectively, as compared to $ 126,259 and $ 195,924 for the three and six months ended June 30, 2019, respectively.

The Company incurred interest expense of $ 421,004 and $ 1,179,338 for the three and nine months ended September 30, 2020, respectively, as compared to $ 383,334 and $ 979,167 for the three and nine months ended September 30, 2019, respectively.

In addition, amortization of the final payment fee was $ 87,425 and $ 325,453 for the three and nine months ended September 30, 2020, respectively, as compared to $ 120,322 and $ 316,246 for the three and nine months ended September 30, 2019, respectively.

The outstanding debt and unamortized debt discount balances are as follows:

September 30,

Total Outstanding Debt

1 unchanged sentence

unamortized debt discount, long-term

current portion of long-term debt

( 1,981,582 )

current portion of long-term debt

( 2,666,667 )

3 unchanged sentences

Loan payable, current portion

Further information on warrants issued related to the debt financings and amendments are disclosed in Note 6 - Stockholders’ Equity under the “Warrants” section.

Amortization of the debt discount in relation to warrants issued as described above was $ 59,998 and $ 118,636 for three and six months ended June 30, 2020, as compared to $ 61,126 and $ 98,894 for the three and six months ended June 30, 2019, respectively.

Scheduled Principal Payments on Outstanding Debt, as of June 30, 2020, are as follows:

In connection with the entry into the Hercules Term Loan, the Company issued to Hercules a warrant to purchase a number of shares of the Company’s common stock equal to 2.5 % of the aggregate amount of the Term Loan Advances that are funded.

Further information on warrants issued related to this loan and prior debt financings and amendments are disclosed in Note 6 - Stockholders’ Equity under the “Warrants” section.

Amortization of the debt discount in relation to warrants issued as described above was $ 46,920 and $ 165,556 for the three and nine months ended September 30, 2020, as compared to $ 56,602 and $ 155,496 for the three and nine months ended September 30, 2019, respectively.

Scheduled Principal Payments on Outstanding Debt, as of September 30, 2020, are as follows:

Total principal payments outstanding

The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the six months ended June 30, 2020.

The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the nine months ended September 30, 2020.

Net Loss per Common Share

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Basic and diluted net loss per common share:

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Net loss per common share—basic and diluted

The following potentially dilutive securities outstanding at June 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

The following potentially dilutive securities outstanding at September 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

September 30,

Stock options

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SVB Leerink is entitled to receive a commission of 3.0 % of the gross proceeds for any shares sold under the December 2019 Sales Agreement.

The Company received approximately $ 12.4 million in gross proceeds through the sale of 141,678 shares, of which net proceeds were approximately $ 12.1 million during the six months ended June 30, 2020.

The Company received approximately $ 12.4 million in gross proceeds through the sale of 141,678 shares, of which net proceeds were approximately $ 12.1 million during the nine months ended September 30, 2020.

In December 2019, the Company completed an underwritten public offering, whereby the Company sold 2,300,000 shares of common stock at a public offering price of $ 87.00 per share.

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Equity Incentive Plans

There were 2,635,527 shares available for the issuance of stock options or stock-based awards under the Company’s 2015 Omnibus Incentive Compensation Plan at June 30, 2020.

There were 4,134,138 shares available for the issuance of stock options or stock-based awards under the Company’s 2015 Omnibus Incentive Compensation Plan at September 30, 2020.

Stock Options

The following table sets forth the stock option activity for the six months ended June 30, 2020:

The following table sets forth the stock option activity for the nine months ended September 30, 2020:

exercise price

Outstanding at December 31, 2019

Outstanding at June 30, 2020

Vested and expected to vest at June 30, 2020

Exercisable at June 30, 2020

Outstanding at September 30, 2020

Vested and expected to vest at September 30, 2020

Exercisable at September 30, 2020

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model.

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Expected volatility is based on historical volatilities of similar entities within the Company’s industry which were commensurate with the Company’s expected term assumption.

The weighted average grant date fair value of options granted was $ 34.24 per option for the six months ended June 30, 2020.

As of June 30, 2020, there was $ 30.2 million of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted average period of 3.2 years.

These amounts do not include 11,295 options outstanding as of June 30, 2020, which are performance-based and vest upon the achievement of certain corporate milestones.

The weighted average grant date fair value of options granted was $ 34.73 per option for the nine months ended September 30, 2020.

As of September 30, 2020, there was $ 26.9 million of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted average period of 3.0 years.

These amounts do not include 11,222 options outstanding as of September 30, 2020, which are performance-based and vest upon the achievement of certain corporate milestones.

Stock‑based compensation will be measured and recorded if and when it is probable that the milestone will occur.

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In 2020, the Company began granting RSUs covering an equal number of its shares of common stock to employees.

For the six months ended June 30, 2020 the weighted-average grant date fair value was $ 32.79 .

The fair value of RSUs is determined on the date of the grant based on the market price of its shares of common stock as of that date.

The fair value of the RSUs is recognized as an expense ratably over the vesting period of four years .

As of June 30, 2020, total compensation cost not yet recognized related to unvested RSUs was $ 4.6 million, which is expected to be recognized over a weighted-average period of 3.7 years.

The following table sets forth the RSU activity for the six months ended June 30, 2020:

As of September 30, 2020, total compensation cost not yet recognized related to unvested RSUs was $ 4.7 million, which is expected to be recognized over a weighted-average period of 3.7 years.

The following table sets forth the RSU activity for the nine months ended September 30, 2020:

Outstanding at December 31, 2019

Outstanding at June 30, 2020

Stock-based compensation expense recognized for the three and six months ended June 30, 2020 and 2019 was allocated as follows:

Three months ended June 30,

Six months ended June 30,

Outstanding at September 30, 2020

Stock-based compensation expense recognized for the three and nine months ended September 30, 2020 and 2019 was allocated as follows:

Three months ended September 30,

Nine months ended September 30,

Research and development

General and administrative

The following table summarizes warrant activity for the six months ended June 30, 2020:

The following table summarizes warrant activity for the nine months ended September 30, 2020:

exercise price

Outstanding at December 31, 2019

Outstanding at June 30, 2020

In connection with the 2016 Original Term Loan, SVB and Life Science Loans, LLC (“Life Science”) received warrants to purchase an aggregate 65,228 shares of the Company’s common stock at an exercise price of $ 7.41 per share, which are exercisable for seven years from the date of issuance.

Outstanding at September 30, 2020

Outstanding Warrants

In connection with the first advance of the 2020 Term Loan, Hercules Capital Inc.

received warrants to purchase an aggregate 15,541 shares of the Company’s common stock at an exercise price of $ 80.43 per share, which was the volume weighted average price of the Company’s common stock over the ten -day trading period immediately preceding the initial closing, subject to certain limited adjustments as specified in the warrant.

The warrants are exercisable for seven years from the date of issuance.

The warrants were classified as a component of stockholders’ equity.

T he relative fair value of the warrants of approximately $ 0.9 million at the time of issuance, which was determined using the Black-Scholes option-pricing model, was recorded as additional paid-in capital and reduced the carrying value of the debt.

The discount on the debt is being amortized to interest expense over the term of the debt utilizing the effective interest rate method.

Fully Exercised Warrants

In connection with the 2016 Original Term Loan, SVB and Life Science Loans, LLC (“Life Science”) received warrants to purchase an aggregate of 65,228 shares of the Company’s common stock at an exercise price of $ 7.41 per share, which were exercisable for seven years from the date of issuance.

The warrants were classified as a component of stockholders’ equity.

In September 2019, SVB exercised in full the 32,614 warrants it received in connection with the 2016 Original Term Loan via a cashless exercise.

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The Company issued Life Science 29,982 shares of its common stock in connection with the warrant exercise and did not receive any cash proceeds.

As of June 30, 2020, none of the warrants issued in connection with the 2016 Original Term Loan were outstanding.

Additionally, in connection with the 2016 Amended Term Loan, SVB and WestRiver Innovation Lending Fund VIII, L.P.

received warrants to purchase an aggregate 15,750 shares of the Company’s common stock at an exercise price of $ 3.06 per share, which are exercisable for seven years from the date of issuance.

Both of these warrants were classified as a component of stockholders’ equity.

As of September 30, 2020, none of the warrants issued in connection with the 2016 Original Term Loan were outstanding.

Additionally, in connection with the 2016 Amended Term Loan, SVB and WestRiver received warrants to purchase an aggregate 15,750 shares of the Company’s common stock at an exercise price of $ 3.06 per share, which were exercisable for seven years from the date of issuance.

Both warrants issued in connection with the 2016 Original Term Loan and the 2016 Amended Term Loan were classified as a component of stockholders’ equity.

Prior to entering into the 2019 Term Loan, the fair value of these warrants and the closing costs were recorded as debt discounts and were being amortized using the effective interest rate method over the term of the loan.

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The Company issued SVB 6,969 shares of its common stock in connection with the warrant exercise, and did not receive any cash proceeds.

The 2018 warrants have a seven-year term and expire on November 25, 2025.

As of June 30, 2020, WestRiver’s portion of 7,875 warrants remain outstanding.

Due to the debt modification upon entry of the 2019 Term Loan, the unamortized balance of the deferred debt issuance costs incurred with the 2016 Amended Term Loan will continue to be amortized through maturity in February 2023 along with the debt issuance costs of the 2019 Term Loan utilizing the effective interest rate method.

In connection with the 2019 Term Loan, SVB and WestRiver received warrants to purchase an aggregate 70,000 shares of the Company’s common stock at a price per share equal to $ 8.10 (the “March 2019 Warrants”).

In August 2020, WestRiver exercised in full the 7,875 warrants it received in connection with the 2016 Amended Term Loan via a cashless exercise.

The Company issued SVB 7,579 shares of its common stock in connection with the warrant exercise, and did not receive any cash proceeds.

As of September 30, 2020, none of the warrants issued in connection with the 2016 Amended Term Loan were outstanding.

Due to the debt modification upon entry of the 2019 Term Loan, the unamortized balance of the deferred debt issuance costs incurred with the 2016 Amended Term Loan continued to be amortized through maturity in February 2023 along with the debt issuance costs of the 2019 Term Loan utilizing the effective interest rate method.

In connection with the 2019 Term Loan, SVB and WestRiver received warrants to purchase an aggregate of 70,000 shares of the Company’s common stock at a price per share equal to $ 8.10 (the “March 2019 Warrants”).

The warrants would initially be earned based upon the usage of the facility and are exercisable until March 4, 2026.

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The discount on the debt is being amortized to interest expense over the term of the debt utilizing the effective interest rate method.

In connection with the First Amendment to the 2019 Term Loan, the March 2019 Warrants were amended to fix the number of shares that may be issued upon exercise of each such March 2019 Warrant at 29,167 shares of common stock, and SVB and WestRiver were issued new warrants (the “July 2019 Warrants”), which become exercisable only upon funding of the Term B Loan Advance, to purchase 5,750 shares of the Company’s common stock at a price per share equal to $ 25.71 .

The July 2019 Warrants replace the portion of the March 2019 Warrants that could originally be earned by SVB and WestRiver upon funding of the Term B Loan Advance.

Due to the Company not drawing down on the Term B Loan Advance by December 31, 2019, the July 2019 Warrants have been terminated.

In connection with the First Amendment to the 2019 Term Loan, the March 2019 Warrants were amended to fix the number of shares that may be issued upon exercise of each such March 2019 Warrant at 29,167 shares of common stock, and SVB and WestRiver were issued new warrants (the “July 2019 Warrants”), which were to become exercisable only upon funding of the Term B Loan Advance, to purchase 5,750 shares of the Company’s common stock at a price per share equal to $ 25.71 .

The July 2019 Warrants replaced the portion of the March 2019 Warrants that could originally be earned by SVB and WestRiver upon funding of the Term B Loan Advance.

Because the Company did not draw down on the Term B Loan Advance by December 31, 2019, the July 2019 Warrants have been terminated.

In December 2019, SVB exercised in full its portion of 29,167 warrants it received in connection with the 2019 Term Loan via a cashless exercise.

The Company issued SVB 24,185 shares of its common stock in connection with the warrant exercise and did not receive any cash proceeds.

As of June 30, 2020, WestRiver’s portion of 29,167 warrants remain outstanding.

In August 2020, WestRiver exercised in full its portion of 29,167 warrants it received in connection with the 2019 Term Loan via a cashless exercise.

The Company issued SVB 26,270 shares of its common stock in connection with the warrant exercise and did not receive any cash proceeds.

As of September 30, 2020, none of the warrants issued in connection with the First Amendment to the 2019 Term Loan were outstanding.

In relation to the retirement of the 2019 Term Loan, the unamortized portion of the debt issuance costs from the issuance of these warrants were fully extinguished and are included in the $ 1.2 million loss on extinguishment of debt on the statement of operations.

License Agreements

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The Company determined that the fair value of each share of common stock granted to Pfizer on the closing date of January 9, 2020 was $ 87.24 , based on the closing price of the Company’s stock on that date.

As a result, the fair value of the stock issued was $ 7.2 million and therefore, the total research and development expense recognized was $ 10.2 million related to the Pfizer license agreement during the six months ended June 30, 2020.

Pfizer can also receive up to $ 323 million in regulatory and sales milestones, and tiered mid-single to low double-digit royalties on future sales.

Pfizer will also have a right of first negotiation on any potential future strategic transactions involving AXS-12 and AXS-14.

During the six months ended June 30, 2020, no milestone payments or royalties were paid to Pfizer by the Company.

During the nine months ended September 30, 2020, no milestone payments or royalties were paid to Pfizer by the Company.

Exclusive License Agreements with Antecip

In 2012, the Company entered into three exclusive license agreements with Antecip Bioventures II LLC, or Antecip, an entity owned by Axsome’s Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., in which it was granted exclusive licenses to develop, manufacture, and commercialize Antecip’s patents and applications related to the development of AXS-02, AXS-05, and AXS-04, a product candidate that is currently in early stage development, anywhere in the world for human therapeutic, veterinary, and diagnostic use.

In 2012, the Company entered into three exclusive license agreements with Antecip, in which it was granted exclusive licenses to develop, manufacture, and commercialize Antecip’s patents and applications related to the development of AXS-02, AXS-05, and AXS-04, a product candidate that is currently in early stage development, anywhere in the world for human therapeutic, veterinary, and diagnostic use.

Pursuant to the agreements, the Company is required to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize AXS-02, AXS-05, and AXS-04.

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To date, the Company has not been required to make any payments to Antecip under any of the license agreements.

In connection with the 2020 Term Loan, the Company entered into a Direct Agreement with Antecip pursuant to which Antecip consented to the collateral assignment of the License Agreement to Hercules, among other things.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements