What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-11 compared with 2021-03-12 · 89 added, 82 removed, 173 unchanged (50% of the section changed)

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All dollar amounts in the below Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in U.S.

dollars, and all dollar amounts are presented in thousands, unless otherwise noted or the context otherwise provides.

dollars, and all dollar and share amounts are presented in thousands, unless otherwise noted or the context otherwise provides.

We are a clinical stage biopharmaceutical company utilizing artificial intelligence approaches to develop transformative medicines in neuroscience and immuno-oncology.

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Our two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation resulting from neuropsychiatric disorders, and BXCL701, an investigational orally administered systemic innate immune activator for the treatment of a rare form of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

During the first quarter ended March 31, 2020, and continuing through December 31, 2020, the novel coronavirus disease, or COVID-19, was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe.

During the first quarter ended March 31, 2020, and continuing through December 31, 2021, COVID-19 was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe.

The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred;

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and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.

Throughout 2020, we took steps in line with guidance from the U.S.

To date, we have taken steps in line with guidance from the U.S.

Centers for Disease Control and Prevention (“CDC”) and the State of Connecticut to protect the health and safety of our employees and the community.

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Beginning late in the second quarter of 2020, we began to slowly bring our staff, in very limited numbers, back to our office.

This modified return-to-work approach is expected to continue into 2021.

This modified return-to-work approach is continuing into 2022.

We have taken steps to protect our workforce and have instituted strict work rules to protect our employees.

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We remain committed to our clinical programs and development plans.

Through December 31, 2020, we have not experienced any significant delays to our ongoing or planned clinical trials, except for challenges in accessing elderly care facilities;

Other than our Phase 2 clinical trial evaluating BXCL501 in patients with delirium through December 31, 2021, we have not experienced any significant delays to our ongoing or planned clinical trials, except for challenges in accessing elderly care facilities and ICU settings;

however, this could rapidly change.

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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 gives us a significant competitive advantage.

We are developing and implementing holistically throughout the drug development process an artificial intelligence (“AI”) eco system designed to rapidly identify drugs that engage novel targets related to indications in psychiatric and neurological rare diseases.

In addition, we focus our development on those indications related to or caused by stress.

This capability complements our existing work done with BioXcel LLC’s EvolverAI and the clinical development group by providing a rich source of new previously unexplored opportunities.

We have constructed a labeled properties graph (also referred to as a knowledge graph) that visually relates neuropsychiatric symptoms, brain circuits, drug targets and existing drugs.

By making these connections, new potential uses for existing drugs emerge.

The knowledge graph may be queried to uncover not only single drugs but potentially new combinations of drugs that we believe may be more effective in treating disorders than lone agents.

New combinations of drugs provide the opportunity to evaluate lower, potentially safer doses of drugs and also provide the basis for stronger intellectual property positions.

The AI team works closely with business development to prioritize the most valuable external opportunities in a data-driven manner.

These opportunities may be found in new potential uses for launched drugs, in drugs that are part of pharma company pipelines that are no longer being pursued, or within academic efforts to develop new drug candidates.

In addition to our AI approach to neuropsychiatric symptoms and neurological rare diseases, we are actively examining signaling pathways in tumors that we believe are potential targets for synergistic drug combinations.

We believe synergistic drug combinations may allow more effective treatments by reducing the probability of drug adaptation by cancer cells.

AI is useful in matching existing oncology drugs and their mechanism of action to specific types of cancer as well as identifying combinations that we believe may have a higher probability of success.

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 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.

Many of the remaining agents are clinical candidates that are active, shelved, or have failed for reasons other than toxicity and that 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.

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.

Also, these compounds usually have known pharmacokinetic properties allowing for a more data-driven selection of appropriate doses for development programs.

Finally, with respect to neuropsychiatric indications, we prioritizes those compounds with structural design features that may contribute to high blood-brain barrier permeability, which may increase the likelihood of compound brain penetration.

Lack of brain penetration is a common cause for failure of many drugs developed for neuropsychiatric indications.

We are prioritizing compounds with available human safety data, acceptable pharmacokinetic results, and data that support a high probability of achieving reasonable brain concentrations after dosing.

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., or Pfizer).

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

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.

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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.

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

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

Our therapeutic area experts have over 150 years of combined experience across the drug discovery and development value chain.

We believe that our method of finding potential product candidates gives us a higher probability of success 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 LLC gives us a significant competitive advantage.

Our approach is illustrated below:

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Research and Development

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

Our research and development expenses reflect costs incurred for the research and development of our clinical and pre-clinical product candidates, which includes payments to BioXcel LLC.

Research and development expense primarily consist of salary, benefits and non-cash stock-based compensation for our research and development personnel, costs incurred under agreements with contract research organizations (“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, and depreciation and other expenses.

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Our research and development costs by program for the years ended December 31, 2021 and 2020 are as follows:

Direct external costs

Other research and development programs

Research and development support services

Total direct external costs

Internal personnel costs

Sub-total direct costs

Indirect costs and overhead

Research and development tax credit

Total research and development expenses

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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 may also incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures and similar requirements applicable to public companies.

We may also 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

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Non-cash stock-based compensation

Professional research & project related costs

Professional fees

Clinical trials expense

Chemical, manufacturing and controls cost ("CMC")

Drug acquisition costs

Travel and other costs

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Total research and development expenses

The increase of $32,198 for the year ended December 31, 2020 is primarily attributable to:

Personnel and related costs increased due to our efforts to enlarge our clinical teams as we expanded our clinical programs during the quarter and in preparation of the potential commercial launch of BXCL501 in the U.S.

Non-cash stock-based compensation also increased as result of the additional personnel hired during the year and increased grant date fair values arising from higher market prices of the Company’s common stock.

The increase in professional research & project related costs and clinical trials expense reflect the broadening of research and development activities and is primarily related to our SERENITY I and II clinical trials as well as increased costs associated with our TRANQUILITY and RELEASE clinical trials for BXCL501 and our Phase II study of BXCL701 for the treatment of prostate cancer.

These amounts were offset by reduced costs related to our BXCL501 Phase Ib schizophrenia trial and our BXCL701 pancreatic cancer trial.

The increase in CMC costs is a result of an increase in manufacturing of BXCL501, packaging and storage costs and a larger volume of purchases of Keytruda to support our oncology program.

Drug acquisition costs incurred during the year ended December 31, 2019 related to a payment due 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 decrease of $5,287 for the year ended December 31, 2021 is primarily attributable to:

Decreased Clinical trial expenses resulting from the completion of our SERENITY I and II, TRANQUILITY, RELEASE and BXCL501 bioavailability clinical trials, partially offset by increased costs related to the 40mcg cohort expansion of our Tranquility trial.

These decreases were further offset by increased costs in our BXCL701 prostate cancer and basket trials.

Lower CMC costs tracked the decrease in fewer BXCL501 manufacturing costs.

The decreases were partially offset by:

Increased personnel and related costs due to our efforts to enlarge our clinical and medical teams as we expanded our clinical and medical programs during the year in preparation of the potential commercial launch of BXCL501 in the U.S.

Increased non-cash stock-based compensation as result of the additional personnel hired during the year.

However, the increase was moderated by a combination of reduced expense due to forfeitures and lower grant date fair values resulting from lower market prices of the Company’s common stock.

The increase in professional fees was generally due to increased regulatory, consulting and toxicology fees related to the BXCL501 program.

Travel and other costs were higher due to increased headcount.

The State of Connecticut provides companies with the opportunity to exchange certain research and development credit carryforwards for cash in exchange for foregoing the carryforward of the research and development credit.

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The benefit for such exchange is recorded as a reduction of research and development expenditures.

The credit decreased in 2021 as a result of lower clinical trial activity.

General and Administrative Expense

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Non-cash stock-based compensation

Professional and consulting fees

Professional fees

Travel and other costs

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The increase of $29,925 for the year ended December 31, 2021 is primarily attributable to:

Increased personnel and related costs due to our continuing efforts to expand our teams in preparation of the potential commercial launch of BXCL501 in the U.S.

Non-cash stock-based compensation also increased as result of the additional personnel and increased grant date fair values arising from higher market prices of the Company’s common stock.

Professional and consulting fees increased due to the expanding growth of our operations and was primarily related to increased corporate legal and investor relations fees, increased market research fees, and increased costs related to our preparation for the potential commercial launch of BXCL501 in the U.S.

Insurance costs also increased primarily related to an increase in Director and Officer liability premiums.

In September 2020, we were the victim of an email-based wire fraud, which led to a misappropriation of approximately $1,927.

We subsequently recovered $774 of this amount and are continuing efforts to recoup the remainder of the funds.

As such, $1,153 is included in Travel and other costs.

In February 2021, we received an additional $250 in insurance proceeds, which will partially offset the loss.

Increased personnel and related costs due to substantially higher headcount in 2021 in preparation of the potential commercial launch of BXCL501 in the U.S.

Increased non-cash stock-based compensation as result of the granting of awards to increased number of personnel hired during the year.

However, the increase was moderated by a combination of reduced expense due to forfeitures and lower grant date fair values resulting from lower market prices of the Company’s common stock.

Increased professional fees due to the expanding growth of our operations and was primarily related to increased corporate patent legal fee and investor relations fees.

Significant commercial costs incurred due to the increased complexity and growth as we prepare for the potential commercial launch of BXCL501 in the U.S.

We also experienced increased market research fees related to the potential commercial launch of BXCL501 in the U.S.

Increased insurance costs primarily related to an increase in Director and Officer liability premiums.

Travel and other expenses approximated the prior year.

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

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As of December 31, 2021, we had cash and cash equivalents of $232,968, working capital of $220,145 and stockholders’ equity of $221,667.

Net cash used in operating activities was $66,350 and $27,101 for the years ended December 31, 2020 and 2019.

We incurred losses of approximately $82,169 and $32,968 for the years ended December 31, 2020 and 2019.

Net cash used in operating activities was $82,153 and $66,350 for the years ended December 31, 2021 and 2020, respectively.

We incurred losses of approximately $106,931 and $82,169 for the years ended December 31, 2021 and 2020, respectively.

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

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In addition, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Annual Report on Form 10-K, as the pandemic continues to evolve globally.

See “Risk Factors—The outbreak of COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.” in Part I, Item 1A.

See “Risk Factors—The COVID-19 pandemic , or other pandemics, epidemics or outbreaks of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.” in Part I, Item 1A.

of this Annual Report on Form 10-K for a further discussion of the potential impact of the COVID-19 pandemic on our business.

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

Since our inception, our operations have been financed primarily by our Parent, BioXcel, and from proceeds from the sale of equity securities.

Through December 31, 2020, we have received approximately $353,337 in aggregate gross proceeds from stock issuances including our initial public offering, private placements of our common stock, and registered offerings of our common stock and an Open Market Sale Agreement (“ATM Program”).

Since our inception, our operations have been financed primarily by BioXcel LLC and from proceeds from the sale of equity securities, including stock issuances including our initial public offering, private placements of our common stock, and registered offerings of our common stock and an Open Market Sale Agreement (“ATM Program”).

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 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 up to $20,000 of our common stock, 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 shares of our common stock at a public offering price of $8.25 per share for gross proceeds of $19,000 less underwriting discounts and commissions.

We received net proceeds of $17,423.

In May 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company could offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having an aggregate offering price of up to $100,000, from time to time, through an “at the marketing offering” program under which Jefferies will act as sale agent.

The Company sold 124 shares under the Sale Agreement in June 2021.

As of December 31, 2021, the Company received proceeds of $4,056, net of issuance costs of $500.

In June 2021, the Company sold in a registered offering 3,155 shares of its common stock at a public offering price of $31.70 per share.

The Company received proceeds of $96,937, net of issuance costs of $3,042.

In February 2020, we sold in a registered offering 2,300 shares of our common stock at a public offering price of $32.00 per share for gross proceeds of $73,600 less underwriting discounts and commissions.

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(in thousands)

Cash provided by (used in) in thousands:

Cash provided by (used in)

Operating activities

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Operating Activities

Cash used in operating activities was $66,350 for the year ended December 31, 2020 and was primarily attributable to our $82,169 net loss, partially offset by $14,611 in stock-based compensation and a $3,033 increase in accounts payable and accrued expenses.

This amount was partially offset by a $2,013 increase prepaid expenses and other assets.

Cash used in operating activities was $27,101 for the year ended December 31, 2019 and was primarily attributable to our $32,968 net loss, partially offset by $3,142 in stock-based compensation, $156 of depreciation and amortization and a $3,759 increased in accounts payable and accrued expenses.

This amount was partially offset by a $1,190 increase in prepaid expenses.

Cash used in operating activities was $82,153 for the year ended December 31, 2021 and was primarily attributable to our $106,931 net loss and a $130 increase in prepaid expense and other assets, partially offset by $19,455 in stock-based compensation and a $4,850 increase in accounts payable and accrued expenses.

Cash used in operating activities was $66,350 for the year ended December 31, 2020 and was primarily attributable to our $82,169 net loss and a $2,301 increase in prepaid expenses and other assets, partially offset by $14,611 in stock-based compensation and a $3,197 increase in accounts payable, accrued expenses and other liabilities.

Investing Activities

Cash used in investing activities was $445 for the year ended December 31, 2021 and was attributable to the purchase of furniture and leasehold improvements.

Cash used in investing activities was $316 for the year ended December 31, 2020 and was attributable to the purchase of equipment and leasehold improvements.

Cash used in investing activities was $870 for the year ended December 31, 2019 and was attributable to the purchase of equipment.

Financing Activities

Cash provided by financing activities was $102,447 for the year ended December 31, 2021 and was attributable to $96,937 in net proceeds from the issuance of common stock in our June 2021 public offering, and $4,056 in net proceeds from the sale of common stock under our ATM Program.

Proceeds of $1,454 from the exercise of stock options provided the remainder.

Net cash provided by financing activities was $247,359 for the year ended December 31, 2020 and was primarily attributable to the net proceeds of $68,811 from our February 2020 offering combined with net proceeds of $186,974 from our July 2020 offering.

Additionally, we received $598 in proceeds from the exercise of stock options.

This amount was partially offset by $9,024 used for the purchase and cancellation of 300,000 shares of common stock owned by BioXcel in February 2020.

Net cash provided by financing activities was $17,810 for the year ended December 31, 2019 and was primarily attributable to the net proceeds of $17,423 from our September 2019 Offering combined with net proceeds of $387 under our former ATM Program.

This amount was partially offset by $9,024 used for the purchase and cancellation of 300,000 shares of common stock owned by BioXcel LLC in February 2020.

Operating Capital and Capital Expenditure Requirements

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• continue to operate as a public company.

We believe that our existing cash and cash equivalents as of December 31, 2020 will be sufficient to enable us to fund operating expenses and capital expenditure requirements for at least the next 12 months from the date of the issuance of the financial statements included in this Annual Report on Form 10-K and will be sufficient to fund our ongoing research and development efforts and commercialization preparation into 2022.

We believe that our existing cash and cash equivalents as of December 31, 2021 will be sufficient to enable us to fund operating expenses and capital expenditure requirements for at least the next 12 months from the date of the issuance of the financial statements included in this Annual Report on Form 10-K and will be sufficient to fund our ongoing research and development efforts and commercialization preparation through 2022.

We expect that we will need to obtain substantial additional funding in order to fund our operations.

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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.

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The Black-Scholes model requires the use of assumptions which determine the fair value of the stock-based awards.

Determining the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term of the stock options, the expected volatility of our stock and expected dividends.

Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of the stock options, the expected volatility of our stock and expected dividends.

Prior to the IPO, significant judgement and estimates were used to estimate the fair value of these awards, as the shares of common stock underlying these awards were not then publicly traded.

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The Company has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

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.

Accrued 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 on our estimates of the services received and level of effort in each period.

Research and Development Accruals

Research and development costs are expensed as incurred.

Clinical study costs are accrued over the service periods specified in the contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred.

The Company’s assessment of the completeness of the information is subject to variability and uncertainty.

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.

The date on which some services commence, the level of services performed on or before a given dates and the cost of such services are often subjective determinations.

In addition, in certain circumstances, the determination of the nature and amount of services that have been received during the reporting period requires judgment as the timing and pattern of vendor invoicing does not correspond to the level of services provided.

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

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

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

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

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

We use an asset and liability approach for financial accounting and reporting of income taxes.

Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax basis assets and liabilities and are measured by applying enacted rates and laws to taxable years in which differences are expected to be recovered or

Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate changes.

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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 7. Management’s Discussion and Analysis