What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-12 compared with 2020-03-09 · 3 added, 364 removed, 11 unchanged (97% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on the Nasdaq Capital Market under the symbol “BTAI.”

As of March 4, 2021, there were 9 stockholders of record of our common stock.

5 unchanged sentences

Sales of Unregistered Sales of Securities

During 2019, we issued 54,938 shares of our common stock upon the exercise of stock options previously granted under our equity incentive plan.

The net proceeds to the Company from these option exercises was approximately $22,500.

This securities issuance was in reliance on the exemption contained in Section 4(a)(2) of the Securities Act, as a transaction by issuers not involving a public offering.

Equity Compensation Plans

The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 11.

of Part III of this Annual Report.

of Part III of this Annual Report on Form 10-K.

Issuer Purchases of Equity Securities

In connection with the February 2020 registered offering of our common stock (the “primary offering”), and as disclosed in connection with the primary offering, we granted the underwriters in the primary offering the option to purchase up to 300,000 additional shares of our common stock, the net proceeds from which we would use to purchase the same number of shares of our common stock from BioXcel at the per share price paid by the underwriters in the primary offering.

The underwriters exercised their option in full and, in February 2020, we purchased 300,000 shares of our common stock from BioXcel at a per share price of $30.08.

Selected Financial Data

The following table presents our selected financial data and certain other financial data.

The balance sheet data as of December 31, 2019 and 2018, and the results of operations data for the years then ended were derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K.

The balance sheet data as of December 31, 2017 and the results of operations data for the year then-ended have been derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K.

The financial data and other financial data presented below should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K and with Part II, Item 7, “Management’s Discussion and Analysis of

Financial Condition and Results of Operations”

of this Annual Report on Form 10-K.

The selected financial data in this section are not intended to replace our financial statements and the related notes.

Our historical reposts are not indicative of our future results.

For the years ended December 31,

(in thousands, except per share amounts)

Results of operations data

Operating costs and expenses

Research and development

General and administrative

Total operating expenses

Loss from operations

Dividend and interest income, net

Net loss per share attributable to common stockholders/ Parent basic and diluted

Weighted average shares outstanding - basic and diluted

As of December 31,

(in thousands)

Balance sheet data

Cash and cash equivalents

Working capital

Total stockholders' equity

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data”

and our financial statements and the related notes appearing elsewhere in this report.

In addition to historical information, this discussion and analysis contains forward‑looking statements that involve risks, uncertainties and assumptions.

Our actual results may differ materially from those discussed below.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors”

included elsewhere in this Annual Report on Form 10-K.

All amounts in this report are in U.S.

dollars, unless otherwise noted.

BioXcel Therapeutics, Inc.

is a clinical stage biopharmaceutical company utilizing artificial intelligence to identify improved therapies in neuroscience and immuno-oncology.

BTI's drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices.

BTI's two most advanced clinical development programs are BXCL501, a sublingual thin film formulation designed for acute treatment of agitation resulting from neuropsychiatric disorders, and BXCL701, an orally administered systemic innate immunity activator designed for treatment of a rare form of prostate cancer, pancreatic cancer and advanced solid cancers in combination with other immuno-oncology agents.

The Company’s primary activities have been clinical and pre-clinical research and development of two its two most advanced programs:

BXCL501, a sublingual thin film formulation of dexmedetomidine, or Dex, designed for acute treatment of agitation resulting from neurological and psychiatric disorders, and BXCL701, an immuno-oncology agent designed for treatment of a rare form of prostate cancer and for treatment of pancreatic cancer and other solid tumors.

We intend to develop first-in-class, high value therapeutics by leveraging EvolverAI, a research and development engine created and owned by our parent, BioXcel.

We believe the combination of our therapeutic area expertise and our ability to generate product candidates through our exclusive collaborative relationship with BioXcel in the areas of neuroscience and immuno-oncology gives us a significant competitive advantage.

EvolverAI was developed over the last decade and integrates millions of fragmented data points using artificial intelligence, or AI and proprietary machine learning algorithms.

After evaluating multiple product candidates using EvolverAI, we selected our lead programs because our analysis indicated these drugs may have utility in new therapeutic indices where there is substantial unmet medical needs and limited competition.

By focusing on clinical candidates with relevant human data, we believe our approach will help us design more efficient clinical trials, thereby accelerating our product candidates’

time to market.

We retain global development and commercialization rights to these two programs.

We operate in a single segment.

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance.

To date, our chief operating decision maker has made such decisions and assessed performance at the company level, as one segment.

Our Clinical Programs

The following table summarizes our lead development programs:

Our goal is to become a leader in the field of neuroscience and immuno‑oncology.

The key elements to achieving this goal are to:

Advance BXCL501, a sublingual thin film formulation of Dex, a selective α

2a adrenergic receptor agonist, designed for acute treatment of agitation, to approval through the Section 505(b)(2) pathway.

Neurological and Psychiatric Disorders.

We believe that BXCL501, if approved, has the potential to become the standard of care for the acute treatment of agitation arising from diseases such as schizophrenia, bipolar disorder, dementia, and other indications.

Additional Indications.

We recently announced plans to evaluate BXCL501 in opioid withdrawal and we may also plan to evaluate additional indications for acute treatment of agitation resulting from delirium, alcohol withdrawal and post-traumatic stress disorder, or PTSD.

Dex has been shown to significantly reduce agitation in elderly patients experiencing post-surgical delirium who did not respond to treatment with haloperidol, a potent major tranquilizer and antipsychotic that is used to treat symptoms for schizophrenia.

Agitation Franchise Expansion.

We are also investigating potential treatments for the entire spectrum of agitation from pre-agitation to severe agitation.

We are exploring the use of wearable digital device technology, such as the Apple watch, with the goal of prevention and treatment of agitation including, if approved, the administration of BXCL501 prior to the onset of agitation.

Additionally, we are considering a combination approach of BXCL501 and another agent for the treatment of chronic agitation.

For severe agitation, a single use intramuscular, or IM, injection called KalmPen™

is under development.

Complete BXCL701 Phase 2 trials to evaluate its potential for the first-line treatment of treatment-emergent neuroendocrine prostate cancer, or tNEPC, and for the second-line treatment of pancreatic cancer.

tNEPC (Orphan Segment of Prostate Cancer).

BXCL701 was previously studied in multiple clinical trials and demonstrated single agent anti-tumor activity in melanoma, an immune-sensitive tumor.

Food and Drug Administration, or FDA, authorized our investigational new drug application, or IND, allowing us to initiate a Phase 2 trial evaluating BXCL701 in combination with Pembrolizumab (KEYTRUDA®) in tNEPC, and this trial opened to accrual in February 2019 and continues enrolling patients.

Pancreatic Cancer.

Preclinical data suggests that fibroblast activation protein positive, or FAP, contribute to checkpoint inhibitor resistance, and immunosuppression more generally in pancreatic cancer.

We believe these data provide a strong rationale for combining BXCL701 with a checkpoint inhibitor such as avelumab (Bavencio) or nivolumab (Opdivo).

Furthermore, we have observed synergy between BXCL701 and Bempegaldesleukin (Nektar’s pegylated IL2), a CD122 based agonist of IL-2, in a preclinical pancreatic model.

BXCL701 has been granted orphan drug designation by the FDA for the treatment of pancreatic cancer.

Basket Trial .

BXCL701 is being evaluated in an open-label phase 2 basket trial led by MD Anderson.

The investigator led study is designed to evaluate the response rate of orally administered BXCL701, combined with Pembrolizumab (KEYTRUDA®) in patients with advanced solid cancers.

The study will evaluate both patients who are naïve to checkpoint therapy and those who are refractory to checkpoint therapy.

Potential for Expedited Review Programs.

Given that these indications represent high unmet medical needs with few treatment options, we intend to pursue breakthrough therapy designation and accelerated approval for tNEPC and pancreatic cancer.

Additional Indications.

We believe BXCL701 may be active at multiple stages of the cancer immunity cycle and therefore we believe BXCL701 offers a “pipeline in a product”

platform given its potential for evaluation across other cancers.

BXCL701 was granted an orphan drug designation for the treatment of acute myeloid leukemia in September 2019, its third orphan drug designation in addition to pancreatic cancer and melanoma.

We believe existing preclinical evidence supports the combination of BXCL701 with checkpoint inhibitors and/or agents that act on “co-stimulatory”

pathways within immune effector cells.

Moreover, we believe agents that stimulate antibody dependent cell mediated cytotoxicity, (ADCC) or cell-based therapies such as chimeric antigen receptor T cell (CAR T) therapy, oncolytic viruses or therapeutic vaccines all represent potential combination with BXCL701.

Identify biomarkers to select patients who we believe have the highest likelihood to respond to our product candidates.

Predicting optimal drug responses in patients requires the identification and validation of predictive biomarkers.

We believe that our ability to identify patient subsets most likely to respond to our product candidates will increase the clinical benefit to patients and improve the probability of success of our clinical trials.

The indications for our lead product candidate BXCL701 were chosen in part because they are known to overexpress dipeptidyl peptidase, or DPP 8/9, and FAP.

Our planned proof-of-concept clinical trial of BXCL701 will retrospectively examine biomarkers related to its molecular and cellular targets to identify those that may correlate with clinical efficacy and increase our likelihood of success.

Enhance our R&D pipeline by leveraging our therapeutic area expertise with EvolverAI to identify, develop and commercialize new product candidates in neuroscience and immuno‑oncology.

In addition to our leading clinical programs and our emerging and future pipeline, we intend to select our next clinical program during 2020.

We have established translational and development expertise, which we believe will help us advance the present and future product candidates in these fields.

opportunistically in‑license additional product candidates identified through our AI platform approach within our core areas of expertise.

Maximize the commercial potential of our product candidates .

We have worldwide development and commercialization rights to our BXCL501 and BXCL701.

If BXCL501 and BXCL701 are approved in the United States, we would consider building a specialty sales force in the United States and/or collaborate with third parties to maximize the potential of our product candidates.

Furthermore, we intend to commercialize BXCL501 and BXCL701, if approved, outside the United States through collaborations with third parties.

Our Novel Drug Re-Innovation Approach

Our AI‑based discovery and development process is the foundation of our drug re‑innovation model for identifying the next wave of medicines.

Our therapeutic area experts have over 60 years of experience across the drug discovery and development value chain.

We believe EvolverAI is a novel method of finding potential product candidates because it combines the comprehensiveness and efficiency of machine learning and big data analytics with the expertise and intuition of human experience in drug development.

We believe the combination of our therapeutic area expertise and our ability to generate therapeutic candidates in neuroscience and immuno‑oncology through our exclusive collaborative relationship in those areas with BioXcel give us a significant competitive advantage.

The pharmacological space spans more than 27,000 active pharmaceutical agents and only approximately 4,000 are approved and marketed drugs benefiting patients.

These marketed drugs may be applied to other indications, including rare diseases, and represent an untapped potential for meeting significant unmet medical need and recoupment of research and development investments.

A large number of the remaining agents are clinical candidates that are active, shelved or have failed for reasons other than toxicity and can potentially be re‑engineered for different indications or patient segments.

They potentially represent an unrealized investment of billions of research and development dollars by the private and public sectors, resulting in an immeasurable amount of patient suffering and sacrificing during clinical development.

Traditional drug development is plagued with low success rates (13.8%, according to an MIT study of 186,000 trials from January 2000 to October 2015), long drug development cycles (10-15 years, according to PhRMA Key Facts 2016) and exorbitant development costs ($2.6 billion per drug, according to PhRMA Key Facts).

Furthermore, many serious diseases continue to go unaddressed due to limitations of the current drug discovery paradigm.

The recent advent of numerous ‘omics’

technologies (genomics, proteomics) and rapid advances in science and medicine are generating terabytes of valuable unexploited knowledge that is widely distributed in multiple big data lakes with several orders of complexity and variety.

Much of this data is not being systematically applied to the development of next generation therapeutics, thus preventing the optimization of drug development utilizing the understanding of technology, science, medicine, markets and commercial opportunities.

The efficient and intuitive use of big data remains a bottleneck and a challenge to the pharmaceutical industry.

Taken together, these factors underscore the need for fundamental new approaches to drug discovery and development.

The market opportunity to identify new uses for existing pharmacological agents remains substantial, due to the lack of technology driven insights.

Our parent, BioXcel, has created a proprietary R&D engine, EvolverAI, for drug re-innovation that provides a proprietary systems-based approach designed to unlock the hidden value in drugs.

The combination of our therapeutic area expertise and our exclusive collaborative relationship with BioXcel enables us to screen, analyze, and identify the product candidates that we believe have a high likelihood of benefiting patients.

The compounds in our pipeline have been identified using this proprietary platform.

EvolverAI is designed to eliminate human bias by scanning millions of data points from disparate data sources to create network maps.

The nodes and connections in the network map are weighted and ranked based on the validity of supporting evidence using disease specific algorithms.

They are then further analyzed using artificial intelligence and machine learning approaches supplemented by human domain‑based expertise to uncover novel connections between disease parameters, molecular targets, mechanisms of actions and product candidates.

This drug re-innovation model has been exemplified by the successful development and commercialization of drugs such as Tecfidera (Biogen, Inc.), Thalomid (Celgene Corporation) and Viagra (Pfizer, Inc.).

All of these drugs were identified by insights in biology and disease pathophysiology.

The successful business models of biotech companies like Axsome-Therapeutics, Inc.

and Karuna Therapeutics, Inc.

are based on the re-innovation and combination of existing clinical candidates or marketed drugs to provide novel solutions for patients.

Unfortunately, such discoveries have been severely limited in scope due to the lack of a genuinely integrated big data analytics based approach.

We believe that only EvolverAI allows a comprehensive and unbiased evaluation of the complete pharmacological space.

We believe our drug re-innovation model and exclusive collaborative relationship with BioXcel has the potential to reduce the cost and time of drug development, help us design more efficient trials and accelerate our product candidates’

time to market.

This assumption is based on capitalizing product candidates with substantial clinical data and mitigated risk due to well defined safety profiles, known PK/PD properties, and an established manufacturing and regulatory path.

Our approach is illustrated below:

Basis of Presentation

The Company’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”).

All amounts are presented in thousands.

Components of Our Results of Operations

We have not recognized any revenue since inception.

Operating Costs and Expenses

Research and Development

Research and development expenses consist primarily of costs incurred for the research and development of our clinical and pre-clinical product candidates, which includes payments to BioXcel, our Parent.

employee-related expenses, including salaries, benefits and stock-based compensation expense and travel expenses for employees engaged in research and development functions;

expenses incurred under agreements with contract research organizations, or CROs, and sites that conduct our non-clinical studies and clinical trials;

costs of outside consultants engaged in research and development activities, including their fees, stock-based compensation and travel expenses;

the cost of acquiring, developing and manufacturing pre-clinical and clinical trial materials and lab supplies;

depreciation and other expenses.

We expense research and development costs to operations as incurred.

Our research and development costs by program for the year ended December 31, 2019 and 2018 are as follows:

Other research and development programs

Research and development support services

Total research and development expenses

General and Administrative

General and administrative expenses consist primarily of personnel costs, including salaries, benefits, stock-based compensation and travel expenses for our executive, finance, corporate development and other administrative functions.

General and administrative expenses also include legal expenses to pursue patent protection of our intellectual property, professional fees for audit and tax and insurance charges.

We expect that our general and administrative expenses will increase as we expand our clinical programs.

We expect increased administrative costs resulting from our clinical trials and the potential commercialization of our product candidates.

We believe that these increases will likely include increased costs for director and officer liability insurance, hiring additional personnel to support future market research and future product commercialization efforts and increased fees for outside consultants, attorneys and accountants.

We also expect to incur increased costs to comply with corporate

governance, internal controls, investor relations and disclosures and similar requirements applicable to public companies.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 4 to the financial statements included in this Annual Report on Form 10‑K.

Results of Operations

For a discussion of our results of operations for the year ended December 31, 2017, including a year-to-year comparison between 2018 and 2017, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2018.

Comparison of the Years Ended December 31, 2019 and 2018

The following table summarizes our results of operations for the years ended December 31, 2019 and 2018:

(in thousands)

Operating costs and expenses

Research and development

General and administrative

Total operating expenses

Loss from operations

Other expense

Dividend and interest income, net

Research and Development Expense

Research and development expenses for the years ended December 31, 2019 and 2018 were $25,797 and $14,558, respectively.

The increase of $11,239 is attributable to the costs described in the table below:

Salaries, bonus & related costs

Non-cash stock-based compensation

Professional research & project related costs

Drug acquisition costs

Clinical trials expense

Chemical, manufacturing and controls cost

Total research and development expenses

Salaries, bonus and related costs increased due to higher bonus accruals, increases in headcount, payroll taxes, recruiting fees and travel related costs.

Non-cash stock-based compensation decreased due to the adoption of FASB ASU 2018-07 as of January 1, 2019 which allowed non-employee options to be expensed using the adoption date fair value.

The adoption date value of the stock price was significantly lower than prior re-measurement dates.

In addition, several large option grants became fully

vested during the first quarter of 2018 and there was no corresponding charge during the first quarter of 2019.

These lower charges were offset in part by increases in expense relating to new hires beginning in the second quarter of 2018.

Drug acquisition costs are related to certain payments triggered pursuant to our Amended and Restated Asset Contribution Agreement with our Parent as discussed in Note 5 to the financial statements included elsewhere in this Annual Report on Form 10-K.

The increase in professional research & project related costs, clinical trials expenses and chemical, manufacturing and controls cost reflect the acceleration of research and development activities.

All other increased due to higher technical service charges from BioXcel, and increased depreciation and amortization charges related to our new leased office space.

General and Administrative Expense

General and administrative expenses for the years ended December 31, 2019 and 2018 were $7,804 and $5,404, respectively.

The increase of $2,400 is attributable to the costs described in the table below:

Salaries, bonus & related costs

Non-cash stock-based compensation

Professional fees

Total general and administrative expenses

Salaries, bonus and related costs increased due to increases in headcount, higher bonus accruals, payroll taxes, recruiting fees and travel related costs.

Non-cash stock-based compensation increased slightly in 2019.

Professional fees increased due to expanding operations and operating as a public company.

Higher legal, audit, investor relations, licensing and information technology costs were incurred during 2019.

Insurance costs increased primarily due to increased costs for Director and Officer liability insurance.

All other expenses increased due to additional franchise taxes, office space costs and regulatory filing fees.

Inflation generally affects us by increasing our cost of labor and clinical trial costs.

We do not believe that inflation has had a material effect on our results of operations during the periods presented.

Liquidity and Capital Resources

As of December 31, 2019, we had cash and cash equivalents of $32,426, working capital of $25,639 and stockholders’

equity of $26,895.

Net cash used in operating activities was $27,280 and $13,509 for the years ended December 31, 2019 and 2018.

We incurred losses of approximately $32,968 and $19,270 for the years ended December 31, 2019 and 2018.

We have not yet generated any revenues and we have not yet achieved profitability.

We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need to generate significant product revenues to achieve profitability.

We believe that our existing cash and cash

equivalents as of December 31, 2019, and a review of projected project timing, will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this Annual Report on Form 10-K.

Management’s plans to obtain additional resources for the Company include obtaining capital from the sale of its equity securities, entering into strategic partnership arrangements and short-term borrowings from banks, stockholders or other related parties, if needed.

However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

Sources of Liquidity

We have focused our efforts on raising capital and building the products in our pipeline.

Since our inception, and through our initial public offering of our common stock, or IPO, all our operations have been financed by our Parent, BioXcel, or the sales of our common stock in a series of private placements, three public offerings and an Open Market Sale Agreement.

We have not yet established an ongoing source of revenue sufficient to cover our operating costs and will need to do so in future periods.

In January and February 2018, the Company issued 283,452 shares of common stock with an issuance price of $6.88 per share for gross and net proceeds of $1,950.

In March 2018, we completed our IPO and we issued and sold 5,454,545 shares of common stock at a public offering price of $11.00 per share.

Gross proceeds totaled $60,000, and net proceeds totaled $54,102.

In May 2019, we entered into an Open Market Sale Agreement, or the Sale Agreement, with Jefferies LLC, or Jefferies, pursuant to which we could offer and sell shares of our common stock having an initial offering price no greater than $20.0 million, from time to time, through an “at the market offering”

program under which Jefferies would act as sales agent.

From May 2019 to September 2019, we sold a total of 66,193 shares for gross proceeds of $737 and net proceeds of $387.

We terminated the Sale Agreement on September 22, 2019.

In September 2019, we sold in a registered offering 2,303,030 shares of our common stock at a public offering price of $8.25 per share, less underwriting discounts and commissions for which we received gross and net proceeds of approximately $19,000 and $17,423, respectively.

In February 2020, we sold in a registered offering 2,000,000 shares of our common stock at a public offering price of $32.00 per share for gross proceeds of $64,000 and net proceeds of approximately $60,000.

Year Ended December 31,

(in thousands)

Cash provided by (used in) in thousands:

Operating activities

Investing activities

Financing activities

Operating Activities

For the year ended December 31, 2019, net cash used in operating activities was approximately $27,280 which consisted of a net loss of $32,968 partially offset by $3,142 in stock-based compensation and $156 of depreciation and amortization.

Increases in accounts payable and accrued expenses of $3,580 were offset in part by increases in prepaid expenses (primarily for insurance premiums) and other assets of $1,190.

For the year ended December 31, 2018, net cash used in operating activities was approximately $13,509 which consisted of a net loss of $19,270 partially offset by $3,082 in stock-based compensation and $17 of depreciation.

Increases in accounts payable and accrued expenses of $3,201 were offset in part by increases in prepaid expenses (primarily for insurance premiums) and other assets of $539.

Investing Activities

Net cash used in investing activities was $870 for the year ended December 31, 2019, compared to $340 for the year ended December 31, 2018.

Expenditures for 2019 were primarily related to construction costs and furniture associated with the occupancy of the Company’s 12 th floor office at 555 Long Wharf Drive in New Haven, CT.

Expenditures in 2018 were primarily for design costs associated with the 12 th floor occupancy.

We also purchased computers and related equipment for technical research and for additional headcount during 2019 and 2018.

Financing Activities

Net cash provided by financing activities was $18,011 for the year ended December 31, 2019.

Our September 2019 Offering provided funds of $17,423, net of $1,577 of closing costs.

In addition, our ATM program provided funds of $387, net of $350 of closing costs.

The two equity issuances accounted for the majority of our financing activities.

Net cash provided by financing activities was approximately $55,527 for the year ended December 31, 2018 which was mainly attributable to the proceeds from issuance of common stock in our IPO and private placements of common stock, offset in part by repayment of loans to our Parent.

Operating Capital and Capital Expenditure Requirements

We expect to continue to incur significant and increasing operating losses at least for the next several years as we expand our clinical trials of BXCL501 and BXCL701, seek marketing approval for our product candidates and pursue development of our other product candidates.

We do not expect to generate revenue unless and until we successfully complete development and obtain regulatory approval for our product candidates.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our planned clinical trials and our expenditures on other research and development activities.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements.

We anticipate that our expenses will increase substantially as we:

continue our clinical development of BXCL501 and BXCL701;

conduct additional research and development with our product candidates;

seek to identify, acquire, develop and commercialize additional product candidates;

integrate acquired technologies into a comprehensive regulatory and product development strategy;

maintain, expand and protect our intellectual property portfolio;

hire scientific, clinical, quality control and administrative personnel;

add operational, financial and management information systems and personnel, including personnel to support our drug development efforts;

seek regulatory approvals for any product candidates that successfully complete clinical trials;

ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval;

continue to operate as a public company.

We expect that we will need to obtain substantial additional funding in order to complete our clinical trials.

To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders.

In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that

include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of BXCL501, BXCL701 or other product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to BXCL501, BXCL701 or other product candidates that we otherwise would seek to develop or commercialize ourselves.

Critical Accounting Policies

The preparation of our financial statements in conformity with GAAP requires management to exercise its judgment.

We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements.

On an ongoing basis, we evaluate our estimates and judgments.

We base our estimates and judgments on a variety of factors including our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals.

We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.

While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate.

Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

A description of significant accounting policies that require us to make estimates and assumptions in the preparation of our financial statements is as follows:

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from these estimates.

Research and Development

Research and development expenses are expensed as incurred.

Patent costs and patent acquisition costs are expensed as incurred and included in general and administrative expenses.

Stock-based Compensation

Charges from our Parent, BioXcel Corporation.

BioXcel has granted stock options to its employees under its own equity incentive plan, or the BioXcel Plan.

Stock-based compensation expense from awards granted under the BioXcel Plan is allocated to us over the required service period over which those stock option awards vest and is based upon the percentage of time the award recipient spent working on our activities compared to BioXcel activities, which is the same basis used for allocation of salary costs.

The BioXcel stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period.

The estimated fair value of these BioXcel stock option awards was determined using the

Black Scholes option pricing model on the date of grant.

Significant judgment and estimates were used to estimate the fair value of these awards, as they are not publicly traded.

Our estimation of fair value of the awards considered recent transactions entered into by BioXcel, relevant industry and comparable public company data.

Since BioXcel is a non-public entity, the majority of the inputs used to estimate the fair value of the common stock option awards are considered level 3 due to their unobservable nature.

Each option award is subject to specified vesting schedules and requirements (a mix of time-based and corporate event-based, including financing events).

Compensation expense is charged to us by BioXcel over the required service period to earn the award which is expected to be up to four years, subject to the achievement of time and event-based vesting requirements.

BioXcel Therapeutics, Inc.

2017 Equity Incentive Plan

Our board of directors adopted the 2017 Equity Incentive Plan, or the Plan, on August 22, 2017.

The Plan will expire on August 22, 2027.

The purpose of the Plan is to attract and retain key personnel and to provide a means for directors, officers, managers, employees, consultants and advisors to acquire and maintain an interest in our company, which interest may be measured by reference to the value of its common stock.

The Company accounts for stock-based compensation in accordance with ASC 718, “

Compensation—Stock Compensation, ”

which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options.

The Company’s stock-based compensation plan was adopted and became effective in August 2017.

Prior to the Company adopting its stock-based compensation plan the Parent granted stock options to its employees.

As a result, related stock-based compensation expense has been allocated to the Company over the required service period over which these BioXcel stock option awards vest in the same manner salary costs of employees have been allocated to the BTI Business in the carve-out process.

Both BioXcel and the Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period.

The estimated fair value of stock option awards was determined using the Black-Scholes option pricing model on the date of grant.

Significant judgment and estimates were used to estimate the fair value of these awards, as they were not publicly traded.

Stock awards granted by the Company subsequent to the IPO are valued using market prices at the date of grant.

The Company adopted FASB ASU 2018-07 as of January 1, 2019 which allowed non-employee options to be expensed using the adoption date fair value.

The Company adopted FASB ASU 2016‑09 as of January 1, 2018 and has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment.

As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

Expenses Accrued Under Contractual Arrangements with Third Parties;

Accrued Clinical Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses.

This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost.

The majority of our service providers invoice us monthly in arrears for services performed.

We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical trials on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.

Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.

In accruing expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period, which is based on an established protocol specific to each clinical trial.

If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted.

Section 107 of the JOBS Act provides that an “emerging growth company”

can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.

In other words, an “emerging growth company”

can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have chosen to opt out of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards.

Section 107 of the JOBS Act provides that our decision to opt out of the extended transition periods for complying with new or revised accounting standards is irrevocable.

Contractual Obligations and Commitments

The Company entered into an agreement to lease approximately 11,040 square feet of space on the 12th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut that commenced February 22, 2019 (the “Commencement Date”).

The premises were occupied in March 2019.

The term of the 12th floor lease continues from the Commencement Date through the last day of the calendar month immediately following the seventh anniversary of the Commencement Date.

The following table summarizes our contractual obligations at December 31, 2019 and the effect such obligations are expected to have on our liquidity and cash flow in future periods and is solely related to the 12 th floor lease:

Payments due by Period

Operating lease commitments

For additional details, see “Note 12 to Financial Statements –

Leases.”

Off-Balance Sheet Arrangements

We did not have during the periods presented, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

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-K

Item 5. Market for Registrant’s Common Equity