Axsome Therapeutics, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Axsome Therapeutics, Inc. Consolidated Balance Sheets March 31, December 31, 2021 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 164,660,132 $ 183,876,453 Prepaid and other current assets 375,306 148,373 Total current assets 165,035,438 184,024,826 Equipment, net 74,316 52,647 Right-of-use asset - operating lease 1,476,711 1,739,475 Other assets 317,375 317,375 Total assets $ 166,903,840 $ 186,134,323 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 14,621,717 $ 13,504,022 Accrued expenses and other current liabilities 5,864,526 8,713,249 Operating lease liability, current portion 1,196,539 1,220,587 Total current liabilities 21,682,782 23,437,858 Loan payable, long-term 48,597,943 48,321,848 Operating lease liability, long-term 329,916 581,708 Total liabilities 70,610,641 72,341,414 Stockholders’ equity: Preferred stock, $ 0.0001 par value per share ( 10,000,000 shares authorized, none issued and outstanding at March 31, 2021 and December 31, 2020, respectively) — — Common stock, $ 0.0001 par value per share ( 150,000,000 shares authorized, 37,563,882 and 37,374,088 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively) 3,756 3,737 Additional paid-in capital 404,345,506 392,585,265 Accumulated deficit ( 308,056,063 ) ( 278,796,093 ) Total stockholders’ equity 96,293,199 113,792,909 Total liabilities and stockholders’ equity $ 166,903,840 $ 186,134,323 The accompanying notes are an integral part of the consolidated financial statements. 4 Table of Contents Axsome Therapeutics, Inc. Consolidated Statements of Operations (Unaudited) Three Months March 31, 2021 2020 Operating expenses: Research and development $ 16,595,689 $ 27,521,400 General and administrative 11,248,372 4,970,057 Total operating expenses 27,844,061 32,491,457 Loss from operations ( 27,844,061 ) ( 32,491,457 ) Interest and amortization of debt discount (expense) income ( 1,415,909 ) 7,311 Net loss $ ( 29,259,970 ) $ ( 32,484,146 ) Net loss per common share, basic and diluted $ ( 0.78 ) $ ( 0.88 ) Weighted average common shares outstanding, basic and diluted 37,429,450 37,061,356 The accompanying notes are an integral part of the consolidated financial statements. 5 Table of Contents Axsome Therapeutics, Inc. Consolidated Statements of Stockholders’ Equity (Unaudited) Common stock Additional Accumulated Total stockholders’ Shares Amount paid-in capital deficit equity Balance at December 31, 2019 36,933,217 3,693 354,614,189 ( 175,895,493 ) 178,722,389 Stock-based compensation — — 2,133,530 — 2,133,530 Issuance of common stock upon exercise of options 60,186 6 629,750 — 629,756 Issuance of common stock related to license agreement 82,019 8 7,155,329 — 7,155,337 Net loss — — — ( 32,484,146 ) ( 32,484,146 ) Balance at March 31, 2020 37,075,422 3,707 364,532,798 ( 208,379,639 ) 156,156,866 Balance at December 31, 2020 37,374,088 3,737 392,585,265 ( 278,796,093 ) 113,792,909 Stock-based compensation — — 3,731,097 — 3,731,097 Issuance of common stock upon exercise of options 94,000 10 1,913,289 — 1,913,299 Issuance of common stock upon vesting of RSUs 1,917 — — — — Issuance of common stock upon financing 93,877 9 6,115,855 — 6,115,864 Net loss — — — ( 29,259,970 ) ( 29,259,970 ) Balance at March 31, 2021 37,563,882 3,756 404,345,506 ( 308,056,063 ) 96,293,199 The accompanying notes are an integral part of the consolidated financial statements. 6 Table of Contents Axsome Therapeutics, Inc. Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2021 2020 Cash flows from operating activities Net loss $ ( 29,259,970 ) $ ( 32,484,146 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 3,731,097 2,133,530 Non-cash research and development license expense — 7,155,337 Amortization of debt discount 276,095 177,652 Amortization of operating lease right-of-use asset 262,764 — Change in operating lease liability ( 275,840 ) — Depreciation 8,326 5,436 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 226,933 ) 103,725 Other assets — ( 3,700 ) Accounts payable 1,117,695 1,248,389 Accrued expenses and other current liabilities ( 2,848,723 ) ( 1,609,407 ) Net cash used in operating activities ( 27,215,489 ) ( 23,273,184 ) Cash flows from investing activities Purchases of equipment ( 29,995 ) ( 9,331 ) Net cash used in investing activities ( 29,995 ) ( 9,331 ) Cash flows from financing activities Proceeds from issuance of common stock upon financing, net 6,115,864 — Proceeds from issuance of common stock upon exercise of options 1,913,299 629,756 Net cash (used in) provided by financing activities 8,029,163 629,756 Net (decrease) increase in cash ( 19,216,321 ) ( 22,652,759 ) Cash at beginning of period 183,876,453 219,966,167 Cash at end of period $ 164,660,132 $ 197,313,408 Supplemental disclosures of cash flow information: Interest paid $ 1,143,750 $ 379,167 The accompanying notes are an integral part of the consolidated financial statements. 7 Table of Contents Axsome Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) Note 1. Nature of Business and Basis of Presentation Axsome Therapeutics, Inc. (“Axsome” or the “Company”) is a biopharmaceutical company developing novel therapies for central nervous system (“CNS”) disorders for which there are limited treatment options. By focusing on this therapeutic area, the Company is addressing significant and growing markets where current treatment options are limited or inadequate. The Company’s core CNS portfolio includes five product candidates, AXS-05, AXS-07, AXS-09, AXS-12, and AXS-14, which are being developed for multiple indications. The Company aims to become a fully integrated biopharmaceutical company that develops and commercializes differentiated therapies that expand the treatment options available to caregivers and improve the lives of patients living with CNS disorders. The Company was incorporated on January 12, 2012 in the State of Delaware. The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021. 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 months ended March 31, 2021 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 March 31, 2021, the Company had an accumulated deficit of $ 308.1 million. The Company’s primary sources of cash have been proceeds from the issuance and sale of its common stock in public offerings. The Company has not yet commercialized any of its product candidates and cannot be sure if it will ever be able to do so. The Company’s ability to achieve profitability depends on a number of factors, including its ability to obtain regulatory approval for its product candidates, successfully complete any post-approval regulatory obligations and successfully commercialize its product candidates alone or in partnership. The Company may continue to incur substantial operating losses even if it begins to generate revenues from its product candidates. The Company believes its existing cash will be sufficient to fund its anticipated operating cash requirements for at least twelve months following the date of this filing. The actual amount of cash that the Company will need to operate is subject to many factors, including, but not limited to, the timing, design and conduct of clinical trials for its product candidates. The Company may use a combination of public and private equity offerings, debt financings, other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements if market conditions are favorable or in light of other strategic considerations to finance its future cash needs. The Company’s common stock is listed on the Nasdaq Global Market and trades under the symbol “AXSM”. Impact of COVID-19 In December 2019, a novel (new) coronavirus known as SARS-CoV-2 was first detected in Wuhan, Hubei Province, People’s Republic of China, causing outbreaks of the coronavirus disease, known as COVID-19, that has now spread globally. On January 30, 2020, the World Health Organization (WHO) declared COVID-19 a public health emergency. The Secretary of Health and Human Services declared a public health emergency in the United States on January 31, 2020, under section 319 of the Public Health Service Act (42 U.S.C. 247d), in response to the COVID-19 outbreak. On March 11, 2020, the WHO declared COVID-19 a pandemic. The full impact of the COVID-19 pandemic is unknown and rapidly evolving. While the potential economic impact brought by and over the duration of the COVID-19 pandemic may be difficult to assess or predict, the COVID-19 pandemic has resulted in significant disruption of global financial markets, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market volatility resulting from the COVID-19 pandemic could affect the Company’s business. Given the nature and type of the Company’s short-term investments, the Company does not believe the COVID-19 pandemic has had or will have a material impact on the Company’s current investment liquidity. 8 Table of Contents Note 2. Summary of Significant Accounting Policies Significant Risks and Uncertainties The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s product candidates; the Company’s ability to obtain regulatory approval to market its products, if approved; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products, if approved; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, if approved; and the Company’s ability to raise additional financing. If the Company does not successfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieve and maintain profitability. Use of Estimates Management considers many factors in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these financial statements, management used significant estimates in the following areas, among others: stock‑based compensation expense; the determination of the fair value of the warrants; the accounting for research and development costs; and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Foreign Currency Translation Expenses denominated in foreign currency are translated into U.S. dollars at the exchange rate on the date the expense is incurred. Assets and liabilities of foreign operations are translated at period-end exchange rates. The effect of exchange rate fluctuations on translating foreign currency into U.S. dollars is included in the Statements of Operations and is not material to the Company’s financial statements. Segment and Geographic Information Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment, which is the business of developing novel therapies for the management of CNS disorders. Cash Equivalents The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. The Company’s cash and cash equivalents includes holdings in checking and overnight sweep accounts. The Company’s cash equivalents, which are money market funds held in a sweep account, are measured at fair value on a recurring basis. As of March 31, 2021, the balance of cash and cash equivalents was $ 164.7 million, which approximates fair value and was determined based upon Level 1 inputs. The sweep account is valued using quoted market prices with no valuation adjustments applied. Accordingly, these securities are categorized as Level 1. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash. The Company maintains its cash at financial institutions, which at times, exceed federally insured limits. At March 31, 2021, 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. The Company believes it is not exposed to significant credit risk on cash. 9 Table of Contents Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three‑level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly. Level 3—Inputs that are unobservable for the asset or liability. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s financial instruments are cash, accounts payable, accrued liabilities, and current and long-term debt. 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 on the Company’s balance sheet (see Note 6 – Loan and Security Agreement), is estimated to approximate its fair value as the interest rate approximates the market rate for loans with similar terms and risk characteristics. Debt Issuance Costs Debt issuance costs consist of costs incurred in obtaining long-term financing. These costs are classified on the consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These expenses are deferred and amortized as part of interest expense in the consolidated statement of operations using the effective interest rate method over the term of the debt agreement. Equipment Equipment consists primarily of computer equipment and is recorded at cost. Equipment is depreciated on a straight‑line basis over its estimated useful life, which the Company estimates to be three years . When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in operating expenses. Research and Development Costs Research and development costs are expensed as incurred. Research and development expenses consist primarily of personnel costs for our research and development employees, costs incurred to third-party service providers for the conduct of research, preclinical and clinical studies, laboratory supplies, product license fees, consulting and other related expenses. We estimate research, preclinical and clinical study expenses based on services performed, pursuant to contracts with third-party research and development organizations that conduct and manage research, preclinical and clinical activities on our behalf. We estimate these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments associated with licensing agreements to acquire licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternative future use are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered. 10 Table of Contents Income Taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company estimates an annual effective tax rate of 0 % for the year ending December 31, 2021 and has no t recorded an income tax benefit for the three months ended March 31, 2021 and 2020 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 March 31, 2021, the Company does not believe any material uncertain tax positions are present. In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of income tax expense. Stock-Based Compensation For stock options issued, the Company estimates the grant date fair value of each option using the Black‑Scholes option pricing model. The Black-Scholes model takes into account the expected volatility of the Company’s common stock, the risk-free interest rate, the estimated life of the option, the closing market price of the Company’s common stock and the exercise price. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management’s judgment. In addition, the Company recognizes expense for equity award forfeitures as they occur. For awards subject to service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period, which is generally the vesting term. For restricted stock units (“RSUs”), the Company issues them in the form of Company common stock. The fair market value of these awards is based on the market closing price per share on the grant date. Prior to January 1, 2020, the Company only granted stock options. Beginning in 2020, for grants to employees, the Company granted a mix of stock options and RSUs. For awards subject to service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, the Company recognizes stock-based compensation expense using the accelerated attribution method when it is probable that the performance condition will be achieved. The expense related to the stock-based compensation is recorded within the same financial statement line item as the grantee’s cash compensation. The Company’s policy upon exercise of stock options and RSUs is that shares will be issued as new shares drawing on the Company’s 2015 Omnibus Incentive Compensation Plan share pool that was adopted by the stockholders in November 2015. Basic and Diluted Net Loss per Common Share Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, stock options, and RSUs, which would result in the issuance of incremental shares of common stock. As the impact of these items is anti-dilutive during periods of net loss, there was no difference between basic and diluted net loss per share of common stock for the three months ended March 31, 2021 and 2020. Leases The Company determines if an arrangement is a lease at contract inception. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. When evaluating whether a contract contains a lease, the Company considers whether (1) the contract explicitly or implicitly identifies assets that are contractually defined and (2) the Company obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. 11 Table of Contents The Company’s lease agreement contains lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company has applied the practical expedient to combine fixed payments for non-lease components with lease payments and account for them together as a single lease component, which increases the amount of lease assets and corresponding liabilities. Payments under the Company’s lease arrangement are primarily fixed, however variable payments, are expensed as incurred and not included in the operating lease asset and liability. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses the implicit interest rate when readily determinable and uses the Company’s incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments. The Company’s operating leases are reflected in the right-of-use operating asset; operating lease liability, current portion; and operating lease liability, long-term portion in the Company’s consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, and do not include an option to extend the term or purchase the underlying asset that that the Company is reasonably certain to exercise, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Recent Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): 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. Early adoption is permitted, including adoption in an interim period. The Company adopted this standard on January 1, 2021 , and the standard did not have a significant impact on its consolidated financial statements. In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which clarifies various topics in the Accounting Standards Codification, including the addition of existing disclosure requirements to the relevant disclosure sections. The amendments in ASU 2020-10 do not change GAAP and, therefore, are not expected to result in a significant change in practice. ASU 2020-10 should be applied retrospectively to the beginning of the period that includes the adoption date. ASU 2020-10 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this standard on January 1, 2021 , and the standard did not have a significant impact on its consolidated financial statements. Note 3. Accrued Expenses and Other Current Liabilities At March 31, 2021 and December 31, 2020 accrued expenses and other current liabilities consisted of the following: ​ March 31, 2021 December 31, 2020 Accrued research and development $ 1,183,367 $ 4,293,522 Accrued compensation 1,165,548 2,870,261 Accrued general and administrative 3,121,653 1,155,508 Accrued Interest 393,958 393,958 Total $ 5,864,526 $ 8,713,249 12 Table of Contents Note 4. Loan and Security Agreement 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 defined below), 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. 13 Table of Contents The Loan Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens (including a negative pledge on intellectual property and other assets), guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. At the initial closing, there were no applicable financial covenants contained in the Loan Agreement. Only after additional amounts are drawn down by the Company in the future, if the Company decides to do so, under the terms set forth in the Loan Agreement, there will be certain limited financial covenants that will apply, including: • Effective upon 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 180th day following the invoice for such account payable (such amount, the “Qualified Cash A/P Amount”). • Effective 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. • Restrictions on the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses, with certain exceptions. The Company’s obligations under the Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, insolvency and a material adverse change in the Borrower’s business, operations or financial or other condition. In addition, the Company is required to pay a final payment fee equal to 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. Silicon Valley Bank In March 2019, the Company entered into a $ 24.0 million growth capital term loan facility (the “2019 Term Loan”) with Silicon Valley Bank, or SVB and West River Innovation Lending Fund VIII, L.P., or WestRiver. In September 2020, the Company used a portion of the 2020 Term Loan to terminate and repay all amounts outstanding under the 2019 Term Loan and recorded a loss on extinguishment of the 2019 Term Loan. Loan Interest Expense and Amortization The Company incurred interest expense of $ 1,143,750 and $ 379,167 for the three months ended March 31, 2021 and 2020, respectively. In addition, amortization of the final payment fee was $ 143,589 and $ 119,014 for the three months ended March 31, 2021 and 2020, respectively. 14 Table of Contents The outstanding debt and unamortized debt discount balances are as follows: ​ March 31, 2021 December 31, 2020 Total Outstanding Debt $ 50,000,000 $ 50,000,000 Add: accreted liability of final payment fee 295,493 151,912 Less: unamortized debt discount, long-term ( 1,697,550 ) ( 1,830,064 ) Less: current portion of long-term debt — — Loan payable, long-term $ 48,597,943 $ 48,321,848 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 7 - Stockholders’ Equity under the “Warrants” section. Amortization of the debt discount in relation to warrants issued as described above was $ 132,508 and $ 58,638 for three months ended March 31, 2021 and 2020, respectively. Scheduled Principal Payments on Outstanding Debt, as of March 31, 2021, are as follows: 2021 — 2022 — 2023 12,193,153 2024 19,761,468 2025 18,045,379 Total principal payments outstanding $ 50,000,000 The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the three months ended March 31, 2021. Note 5. Net Loss per Common Share The following table sets forth the computation of basic and diluted net loss per common share: Three Months Ended March 31, 2021 2020 Basic and diluted net loss per common share: Net loss $ ( 29,259,970 ) $ ( 32,484,146 ) Weighted average common shares outstanding—basic and diluted 37,429,450 37,061,356 Net loss per common share—basic and diluted $ ( 0.78 ) $ ( 0.88 ) The following potentially dilutive securities outstanding at March 31, 2021 and 2020 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive: March 31, 2021 2020 Stock options 4,385,598 3,962,733 Restricted stock units 303,983 149,389 Warrants 15,541 69,656 Total 4,705,122 4,181,778 Note 6. Commitments and Contingencies Operating Leases 15 Table of Contents For the three months ended March 31, 2021, the Company had the following operating lease expense: Statement of Operations Location Three Months Ended March 31, 2021 Operating lease expense General and administrative and Research and development $ 286,923 Total operating lease expense $ 286,923 Future minimum lease payments of our operating leases as of March 31, 2021 were as follows: 2021 $ 950,000 2022 630,000 2023 — 2024 — 2025 — Thereafter — Total lease payments 1,580,000 Less imputed interest ( 53,545 ) Present value of operating lease liabilities $ 1,526,455 As of March 31, 2021, the remaining lease term for our operating lease was 1.3 years with a discount rate of 6.0 %. The interest rate implicit in lease contracts is typically not readily determinable and as such, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment. Note 7. Stockholders’ Equity Capital Structure In May 2019, the Company entered into the May 2019 Sales Agreement with SVB Leerink, pursuant to which the Company may sell up to $ 50 million in shares of the Company’s common stock from time to time through SVB Leerink, acting as the Company’s sales agent, in one or more at-the-market offerings utilizing the 2016 Shelf Registration Statement. SVB Leerink is entitled to receive a commission of 3.0 % of the gross proceeds for any shares sold under the May 2019 Sales Agreement. Due to expiration of the 2016 Shelf Registration Statement, at the Company’s option, the shares that were unsold of approximately $ 29.9 million under the May 2019 Sales Agreement, may be rolled over to the December 2019 Sales Agreement (see below). In December 2019, the Company entered into the December 2019 Sales Agreement with SVB Leerink, pursuant to which the Company may sell up to $ 80 million in shares of the Company’s common stock from time to time through SVB Leerink, acting as the Company’s sales agent, in one or more at-the-market offerings utilizing the 2019 Shelf Registration Statement. SVB Leerink is entitled to receive a commission of 3.0 % of the gross proceeds for any shares sold under the December 2019 Sales Agreement. For the three months ended March 31, 2021, the Company received approximately $ 6.3 million in gross proceeds through the sale of 93,877 shares, of which net proceeds were approximately $ 6.1 million. For the three months ended March 31, 2020, the Company did no t issue any shares of common stock pursuant to the December 2019 Sales Agreement. In December 2019, the Company completed an underwritten public offering, whereby the Company sold 2,300,000 shares of our common stock at a public offering price of $ 87.00 per share. The Company received gross proceeds of approximately $ 200.1 million and net proceeds of approximately $ 187.1 million, net of underwriting discounts and offering expenses. The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings. The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors. 16 Table of Contents Shelf Registration Statement On December 5, 2019, the Company filed an automatic shelf registration statement (“2019 Shelf Registration”) with the Securities and Exchange Commission (“SEC”) for the issuance of common stock, preferred stock, warrants, rights, debt securities and units. It became effective upon filing with the SEC and is currently the Company’s only active shelf registration. Through the date of this report, the Company has issued common stock of approximately $ 228.2 million pursuant to such shelf registration statement. Under SEC rules, the 2019 Shelf Registration Statement allows for the potential future offer and sale by the Company, from time to time, in one or more public offerings, of an indeterminate amount of the Company’s common stock, preferred stock, debt securities, and units at indeterminate prices. At the time any of the securities covered by the 2019 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of any such offering. Equity Incentive Plans There were 4,727,326 shares available for the issuance of stock options or stock-based awards under the Company’s 2015 Omnibus Incentive Compensation Plan at March 31, 2021. Stock Options The following table sets forth the stock option activity for the three months ended March 31, 2021: ​Number of shares ​Weighted average exercise price Weighted average contractual term ​Aggregate intrinsic value Outstanding at December 31, 2020 3,725,648 $ 16.06 Granted 780,440 66.72 Exercised ( 94,000 ) 22.20 Forfeited ( 25,844 ) 80.72 Expired ( 646 ) 87.76 Outstanding at March 31, 2021 4,385,598 $ 24.04 7.5 $ 248,407,010 Vested and expected to vest at March 31, 2021 4,379,429 $ 24.94 7.5 $ 247,912,432 Exercisable at March 31, 2021 2,529,258 $ 11.03 5.9 $ 178,255,864 The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The expected term of the Company’s stock options has been determined utilizing the “simplified” method as described in the SEC’s Staff Accounting Bulletin No. 107 relating to stock-based compensation. The simplified method was chosen because the Company has limited historical option exercise experience due to its short operating history. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for a period approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. 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 $ 49.26 per option for the three months ended March 31, 2021. As of March 31, 2021, there was $ 54.8 million of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted average period of 3.5 years. These amounts do not include 9,788 options outstanding as of March 31, 2021, 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. Restricted Stock Units In 2020, the Company began granting RSUs covering an equal number of its shares of common stock to employees. 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 March 31, 2021, total 17 Table of Contents compensation cost not yet recognized related to unvested RSUs was $ 12.0 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 three months ended March 31, 2021: ​ Number of shares Weighted average grant date fair value Outstanding at December 31, 2020 136,067 $ 35.76 Granted 174,688 49.37 Vested ( 3,151 ) 45.14 Forfeited ( 3,621 ) 74.57 Outstanding at March 31, 2021 303,983 $ 41.06 Stock-based compensation expense recognized for the three months ended March 31, 2021 and 2020 was allocated as follows: ​ Three Months Ended March 31, ​ 2021 2020 Research and development $ 1,534,395 $ 634,375 General and administrative 2,196,702 1,499,155 Total $ 3,731,097 $ 2,133,530 Warrants The following table summarizes warrant activity for the three months ended March 31, 2021: Weighted average Warrants exercise price Outstanding at December 31, 2020 15,541 $ 80.43 Issued — — Exercised — — Outstanding at March 31, 2021 15,541 $ 80.43 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. The 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. Note 8. License Agreements Exclusive License Agreement with Pfizer In January 2020, the Company entered into an exclusive license agreement with Pfizer Inc. (“Pfizer”) for Pfizer’s clinical and nonclinical data, and intellectual property for reboxetine, the active pharmaceutical ingredient in AXS-12 which the Company is developing for the treatment of narcolepsy. The agreement also provides the Company exclusive rights to develop and commercialize esreboxetine, a new late-stage product candidate now referred to as AXS-14, in the U.S. for the treatment of fibromyalgia. 18 Table of Contents Under the terms of the agreement, Pfizer received 82,019 shares of the Company’s common stock having a stated value of $ 8.0 million, based on the average closing price of the Company’s common stock for the ten prior trading days of $ 97.54 , in consideration for the license and rights and also received an upfront cash payment of $ 3.0 million. 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 three months ended March 31, 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 three months ended March 31, 2021, 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, 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. Under the terms of the agreements, the Company is required to pay to Antecip a royalty equal to 4.5 % for AXS-02, 3.0 % for AXS-05, and 1.5 % for AXS-04, of net sales of products containing the licensed technology by the Company, its affiliates, or permitted sublicensees. These royalty payments are subject to reduction by an amount up to 50.0 % of any required payments to third parties. Unless earlier terminated by a party for cause or by the Company for convenience, the agreements shall remain in effect on a product-by-product and country-by-country basis until the later to occur of (i) the applicable product is no longer covered by a valid claim in that country or (ii) 10 years from the first commercial sale of the applicable product in that country. Upon expiration of the agreements with respect to a product in a country, the Company’s license grant for that product in that country will become a fully paid-up, royalty-free, perpetual non-exclusive license. If Antecip terminates any of the agreements for cause, or if the Company exercises its right to terminate any of the agreements for convenience, the rights granted to the Company under such terminated agreement will revert to Antecip. 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. 19 Table of Contents