What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-24 · 162 added, 218 removed, 266 unchanged (59% of the section changed)

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 in conjunction with the consolidated financial statements and the related notes to those statements included later in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties.

1 unchanged sentence

Important factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A.

“Risk Factors” and the section entitled “Special Note Regarding Forward-Looking Statements.”

“Risk Factors” and the section titled “Special Note Regarding Forward-Looking Statements.”

References to “we,” “our,” “us” and “the Company” refer to COMPASS Pathways plc.

Operating Results

We are a mental health care company dedicated to accelerating patient access to evidence-based innovation in mental health.

We are motivated by the need to find better ways to help and empower people suffering with mental health challenges who are not helped by existing therapies, and are pioneering the development of a new model of psilocybin therapy, in which psilocybin is administered in conjunction with psychological support.

Our initial focus is on treatment-resistant depression, or

TRD, a subset of major depressive disorder, or MDD, comprising patients who are inadequately served by the current treatment paradigm.

We are motivated by the need to find better ways to help and empower people suffering with mental health challenges who are not helped by existing therapies, and are pioneering the development of a new model of psilocybin therapy, in which COMP360 psilocybin is administered in conjunction with psychological support, which we refer to as COMP360 psilocybin therapy.

Our initial focus is on TRD comprising patients who are inadequately served by the current treatment paradigm.

Early signals from academic studies, using formulations of psilocybin not developed by us, have shown that psilocybin therapy may have the potential to improve outcomes for patients suffering with TRD, with rapid reductions in depression symptoms and effects lasting up to six months, after administration of a single high dose.

We have developed a proprietary, high-purity polymorphic crystalline formulation of psilocybin, COMP360.

In 2019, we completed a Phase I clinical trial administering COMP360, along with psychological support, to 89 healthy volunteers.

In this trial, we observed that COMP360 was generally well-tolerated and supported continued progression of Phase IIb studies.

On November 9, 2021, we announced positive topline results from our Phase IIb clinical trial evaluating COMP360 in conjunction with psychological support for the treatment of treatment-resistant depression.

This is the largest, randomized, controlled, double-blind psilocybin therapy clinical trial ever completed.

The topline results from the 233-participant trial showed a rapid and sustained response for patients receiving a single dose of COMP360 psilocybin with psychological support.

The trial achieved its primary endpoint for the highest dose, with a 25mg dose of COMP360 demonstrating a statistically significant (p<0.001) and clinically relevant reduction in depressive symptom severity after three weeks compared with the COMP360 1mg arm.

We believe that COMP360 psilocybin therapy - combining COMP360 psilocybin with psychological support from specially trained therapists - could offer a new approach to depression care.

We anticipate the initiation of a Phase III program in 2022.

On November 3, 2021, we announced that we will be conducting a Phase II clinical trial to assess the safety and tolerability of COMP360 psilocybin therapy in post-traumatic stress disorder (PTSD).

The study expands COMPASS’s research pipeline in COMP360 psilocybin therapy.

It is a multicenter, fixed-dose open label study and will enroll 20 participants;

it will begin at The Institute of Psychiatry, Psychology & Neuroscience (IoPPN) at King’s College London.

In 2018, we received Breakthrough Therapy designation from the FDA for COMP360 for the treatment of TRD.

In 2019, we completed a Phase 1 clinical trial administering COMP360, along with psychological support, to 89 healthy volunteers.

In this trial, we observed that COMP360 was generally well-tolerated and supported continued progression of Phase 2b studies.

We also demonstrated the feasibility of administering COMP360 psilocybin to up to six healthy participants simultaneously, with 1:1 support.

In November 2021, we announced positive topline results from our Phase 2b clinical trial evaluating COMP360 in conjunction with psychological support for the treatment of TRD.

On November 3, 2022, The New England Journal of Medicine , the world’s leading peer-reviewed medical journal, published the positive results from our Phase 2b trial.

This is the largest, randomized, controlled, double-blind psilocybin therapy clinical trial completed to date.

The objective of the phase 2b study was to evaluate the efficacy and safety of a single dose of investigational COMP360 psilocybin (25mg or 10mg), compared to 1mg, in patients with TRD.

The topline results from the 233-participant trial showed a rapid and sustained response for patients receiving a single 25mg dose of COMP360 psilocybin administered with psychological support, with 29.1% of participants in remission by week 3 (p<0.002).

The trial achieved its primary endpoint for the 25mg dose, with a 25mg dose of COMP360 demonstrating a statistically significant (p<0.001) and clinically relevant treatment difference against the 1mg dose of COMP360 in reducing depressive symptom severity after three weeks.

We commenced our Phase 3 program evaluating our COMP360 psilocybin therapy in TRD.

The Phase 3 program is composed of two pivotal trials, each with a long-term follow-up component.

The pivotal program design is as follows:

• Pivotal trial 1 (COMP005) (n=255):

a single dose (25mg) monotherapy compared with placebo.

This trial is designed to replicate the treatment response seen in the Company’s Phase 2b trial (n=233).

We expect top-line data in summer of 2024.

• Pivotal trial 2 (COMP006) (n= 568):

a fixed repeat dose monotherapy using three dose arms:

25mg, 10mg and 1mg.

This trial is designed to investigate whether a second dose can increase treatment responders and/or improve responses observed in our Phase 2b trial and explore the potential for a meaningful treatment response from repeat administration of COMP360 10mg.

We expect top-line data by mid-2025.

• The primary endpoint in both pivotal trials is the change from baseline in MADRS total score at week 6.

Beyond TRD, we have ongoing Phase 2 trials in anorexia nervosa and PTSD.

Since our formation, we have devoted substantially all of our resources to conducting preclinical studies and clinical trials, organizing and staffing our company, business planning, raising capital and establishing our intellectual property portfolio.

We do not have any therapeutic candidates approved for sale and have not generated any revenue.

We have funded our operations to date primarily with proceeds from the sale of convertible preferred shares, convertible loan notes, our initial public offering, or IPO, and our follow-on offering of American Depositary Shares, or ADSs, representing our ordinary shares in September 2020 and May 2021, respectively.

Through December 31, 2021, we had received net cash proceeds of $116.4 million from sales of our convertible preferred shares and convertible loan notes, $132.8 million from sales of ADSs in our IPO and $154.8 million from sales of ADS’s in our underwritten public offering, or Follow-On Offering.

In October 2021, we entered into a Sales Agreement with Cowen and Company, LLC, under which we may issue and sell from time to time up to $150.0 million of our ADSs at market prices.

We have not yet sold any ADSs under this at-the-market offering.

We have funded our operations to date primarily with proceeds from the sale of convertible preferred shares, convertible loan notes, our initial public offering, or IPO, and our follow-on offering completed in May 2021, or Follow-On Offering, of American Depositary Shares, or ADSs, representing our ordinary shares in September 2020 and May 2021, respectively.

Through December 31, 2022, we had received net cash proceeds of $116.4 million from sales of our convertible preferred shares and convertible loan notes, $132.8 million from sales of ADSs in our IPO and $154.8 million from sales of ADSs in our Follow-On Offering.

In October 2021, we entered into a Sales Agreement with Cowen and Company, LLC, under which we may issue and sell from time to time up to $150.0 million of our ADSs at market prices, which we refer to as our ATM Facility.

At December 31, 2022, we had received net cash proceeds of $0.4 million from sales of ADSs under our ATM Facility.

We have incurred significant operating losses since our inception.

We incurred total net losses of $71.7 million and $60.3 million, respectively, for the years ended December 31, 2021 and 2020, respectively.

We incurred total net losses of $91.5 million and $71.7 million for the year ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had an accumulated deficit of $261.1 million.

1 unchanged sentence

In the future, we intend to continue to conduct research and development, preclinical testing, clinical trials, regulatory compliance, market access, commercialization and business development activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for at least the next several years.

Our operating losses stem primarily from development of our investigational COMP360 psilocybin therapy for TRD, and we expect they will continue to increase as we increase our headcount and further develop our investigational COMP360 psilocybin therapy candidate through clinical trials for TRD and studies for PTSD, potentially including expanding into additional indications, and initiate preclinical and clinical development of additional programs for different therapeutic candidates, as well as using digital technologies and solutions to enhance our therapeutic offering.

Furthermore, since the completion of our IPO, we have incurred additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

Our operating losses stem primarily from development of our investigational COMP360 psilocybin therapy for TRD, and we expect they will continue to increase as we increase our staffing and conduct our Phase 3 program in TRD for our investigational COMP360 psilocybin therapy candidate and conduct our Phase 2 studies for anorexia nervosa and PTSD and, potentially including expanding into additional indications, and initiate preclinical and clinical development of additional programs for different therapeutic candidates, as well as using digital technologies and solutions to enhance our therapeutic offering.

Furthermore, since the completion of our IPO, we have incurred, and expect to continue to incur, significant costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

We will need substantial additional funding to support our continuing operations and pursue our growth strategy.

Until such time as we can generate significant revenue from sales of therapeutic candidates, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

Our ability to raise additional funds may also be adversely impacted by macroeconomic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide, such as those resulting from heightened or fluctuating interest rates and rates of inflation and foreign exchange fluctuations, potential recessions in any of the regions or countries in which we operate, the ongoing war between Ukraine and Russia, and changing conditions resulting from the COVID-19 pandemic or other public health crises.

Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies.

1 unchanged sentence

As of December 31, 2022, we had cash and cash equivalents of $143.2 million.

We believe that our existing cash and cash equivalents will be sufficient for us to fund our operating expenses and capital expenditure requirements into 2024.

We believe that our existing cash and cash equivalents will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next twelve months.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

See “—Liquidity and Capital Resources—Funding Requirements” below.

While great progress has been made in the fight against the COVID-19 pandemic, it remains a global challenge.

In 2021, COVID-19 vaccines were broadly distributed and administered in certain countries, but the COVID-19 pandemic and its effects continue to evolve.

The exact timing and pace of the recovery is currently indeterminable as certain markets have experienced a resurgence of COVID-19 cases, and, throughout the course of the pandemic, new variants of COVID-19 have been identified and spread significantly, resulting in additional restrictions put in place by certain governments around the world.

The COVID-19 pandemic has created uncertainties in the expected timelines for clinical stage companies.

For example, COVID-19 delayed enrollment in and completion of our Phase IIb clinical trial of COMP360 psilocybin therapy.

There can be no assurance that we will not experience additional enrollment delays in trials or studies.

The ongoing COVID-19 pandemic could also interrupt our clinical trial activities, our supply chain, our employees or the employees of research sites and service providers, such as therapists, suppliers, contract research organizations, or CROs, and contract manufacturing organizations, or CMOs.

We have implemented and continue to maintain flexible work-at-home policies and may experience limitations in employee resources.

We continue to assess our business plans and the impact the ongoing COVID-19 pandemic may have on our ability to advance the development and manufacturing of COMP360 as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom we rely, or to raise financing to support the development of our investigational COMP360 psilocybin therapy.

No assurances can be given that this analysis will enable us to avoid further impacts from the ongoing COVID-19 pandemic.

Macroeconomic Conditions

We continue to monitor current macroeconomic and geopolitical events, including heightened or fluctuating inflation and interest rates and the related impact on U.S.

and global economies, fluctuations in foreign exchange rates, the ongoing war between Ukraine and Russia, and changing conditions resulting from the COVID-19 pandemic, for any potential impact they may have on our business.

Components of Our Results of Operations

2 unchanged sentences

Operating Expenses

Research and Development Expenses

Research and Development

Research and development expenses consist primarily of:

• development costs, including expenses incurred under agreements with CROs and CMOs, investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services, as well as manufacturing scale-up expenses and the cost of acquiring and manufacturing materials for preclinical studies and clinical trials and laboratory and trial site supplies and equipment and compliance with regulatory requirements;

• personnel expenses, including salaries, related benefits and travel expense for employees engaged in research and development functions;

7 unchanged sentences

As a result, we expect that our research and development expenses will continue to increase over the next several years as we:

(i) expedite the

clinical development for our investigational COMP360 psilocybin therapy for TRD;

(ii) fund research for our investigational COMP360 psilocybin therapy in other neuropsychiatric indications, including PTSD;

(i) seek to complete the clinical development for our investigational COMP360 psilocybin therapy for TRD;

(ii) fund research for our investigational COMP360 psilocybin therapy in other neuropsychiatric indications, including anorexia nervosa and PTSD;

(iii) seek to develop digital technologies to complement and augment our therapies, and seek to access other novel drug candidates for development in neuropsychiatric and related indications;

3 unchanged sentences

This is due to the numerous risks and uncertainties associated with development and commercialization, including the following:

• successful enrollment in and completion of clinical trials and preclinical studies;

• sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;

• successful enrollment in and completion of clinical trials and preclinical studies, including our Phase 3 clinical trials in TRD;

• sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials and our ability to raise capital on favorable terms or at all;

• receiving regulatory approvals or clearance for conducting our planned clinical trials or future clinical trials;

7 unchanged sentences

• maintaining a continued acceptable safety profile of our investigational COMP360 psilocybin therapy and our future therapeutic candidates following approval.

A change in the outcome of any of these variables with respect to the development of our investigational COMP360 psilocybin therapy in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of our investigational COMP360 psilocybin therapy.

For example, if the U.S.

Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, the Medicines and Healthcare products Regulatory Agency, or MHRA, or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to commit significant additional financial resources and time on the completion of clinical development of that therapeutic candidate.

General and Administrative Expenses

A change in the outcome of any of these variables, among others, with respect to the development of our investigational COMP360 psilocybin therapy in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of our investigational COMP360 psilocybin therapy.

For example, if the FDA, the European Medicines Agency, or EMA, the Medicines and Healthcare products Regulatory Agency, or MHRA, or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to commit significant additional financial resources and time on the completion of clinical development of that therapeutic candidate.

General and Administrative

General and administrative expenses consist primarily of:

3 unchanged sentences

• facilities and other expenses, including depreciation costs, allocated expenses for rent and maintenance of facilities, director and officer insurance and other operating costs.

We anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support our continued research activities and development of our investigational COMP360 psilocybin therapy.

We also anticipate we will continue to incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs, as well as investor and public relations expenses associated with being a public company.

For example, we no longer qualify as an “emerging growth company” and as a result will incur additional costs, including as a result of becoming a large accelerated filer.

We will reassess our status as a large accelerated filer as at June 30, 2022 and may no longer hold this status if our public float does not exceed $700.0 million on that day.

We will also incur further costs as a result of our loss of Foreign Private Issuer status and resulting transition to a domestic filer effective January 1, 2022.

We anticipate that our general and administrative expenses will continue to be significant in order to support our continued research activities and development of our investigational COMP360 psilocybin therapy.

We also anticipate we will continue to incur significant accounting, audit, legal, regulatory and compliance costs, as well as investor and public relations expenses associated with being a public company.

Additionally, if and when we believe a regulatory approval of a therapeutic candidate appears likely, we anticipate an increase in payroll and other expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our therapeutic candidate.

Other Income (Expense), Net

Other income relates to interest earned on cash balances.

Fair Value Change of Convertible Notes

Fair value change of convertible notes related to the convertible notes which were marked to fair value for the last time prior to conversion to preferred shares in April as part of our Series B fundraise.

Other income relates to interest earned on cash balances and gains/losses recognized in connection with a forward exchange contract.

Foreign exchange gains (losses)

Foreign exchange gains (losses) consist of foreign exchange impacts arising from foreign currency transactions, primarily related to U.S.

dollars maintained in bank accounts in Pounds Sterling functional currency entities.

Benefit from Research and Development Tax Credit

Benefit from research and development, or R&D, tax credit, consists of the R&D tax credit received in the UK, which is recorded within other income (expense), net.

Benefit from R&D tax credit consists of the R&D tax credit received in the UK, which is recorded within other income (expense), net.

As a company that carries out extensive research and development activities, we seek to benefit from the Small and Medium Enterprise, or SME, Program.

Qualifying expenditures largely comprise employment costs for research staff, consumables, a proportion of relevant, permitted sub-contract costs and certain internal overhead costs incurred as part of research projects for which we do not receive income.

Based on criteria established by Her Majesty’s Revenue and Customs, or HMRC, a portion of expenditures being carried in relation to our pipeline research and development, clinical trial management and third-party manufacturing development activities were eligible for the SME regime for the years ended December, 2021 and 2020.

Based on criteria established by His Majesty’s Revenue and Customs, or HMRC, a portion of expenditures being recognized in relation to our pipeline research and development, clinical trial management and third-party manufacturing development activities were eligible for the SME regime for the years ended December 31, 2022 and 2021.

We expect such elements of expenditure will also continue to be eligible for the SME regime for future accounting periods.

2 unchanged sentences

If, in the future, any UK R&D tax credits generated are needed to offset a corporate income tax liability in the UK, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income (expense), net.

Foreign exchange gains (losses)

Foreign exchange gains (losses) consists of foreign exchange impacts arising from foreign currency transactions, primarily related to US dollars maintained in a bank account in a Pounds Sterling functional currency entity.

Income Tax Expense

5 unchanged sentences

After accounting for tax credits receivable, we had accumulated trading losses for carry forward in the UK of $176.9 million and $144.0 million as of December 31, 2022 and 2021, respectively, which is offset by a full valuation allowance.

During the years ended December 31, 2022 and 2021, we recorded a tax provision of $0.4 million and $0.2 million, related to our income tax obligations of its operating company in the US, which generates a profit for tax purposes.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

Comparison For The Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (in thousands):

6 unchanged sentences

LOSS FROM OPERATIONS (110,403) (83,221) (27,182)

OTHER INCOME (EXPENSE), NET:

OTHER INCOME, NET:

Other income 4,061 40 4,021

Foreign exchange gains (losses) 1,990 (11,702) 13,692

Fair value change of convertible notes — (1,771) 1,771

Foreign exchange gains 821 1,990 (1,169)

Benefit from R&D tax credit 14,424 9,648 4,776

Total other income (expense), net 11,678 (8,909) 20,587

Total other income, net 19,306 11,678 7,628

Loss before income taxes (91,097) (71,543) (19,554)

1 unchanged sentence

Net loss $ (91,505) $ (71,742) $ (19,763)

Research and Development Expenses

Research and Development

The table below summarizes our research and development expenses incurred for the years ended December 31, 2022 and 2021 (in thousands):

8 unchanged sentences

The increase in research and development expenses was primarily attributable to:

• an increase of $16.1 million in external development expenses, which primarily related to increases of $15.1 million in clinical trial expenses, $0.4 million in the cost of preclinical studies to assess additional indications for our investigational COMP360 psilocybin therapy development, $0.3 million in regulatory compliance expenses and $0.3 million in drug development and manufacturing costs;

• an increase of $6.0 million in personnel expenses, as a result of hiring additional personnel in our research and development departments to support the expansion of our digital activities, as well as the requirements of increased clinical activities;

• a decrease of $1.8 million in non-cash share-based compensation primarily related to a large option grant that was granted in May 2020 to one employee, which became fully vested on August 17, 2020, resulting in the recognition of $9.5 million in share-based compensation expense in the year ended December 31, 2020, $2.4 million of which was allocated to research and development expenses based on an estimate of time spent indirectly supporting research and development activities.

In addition, the vesting of certain other options accelerated upon completion of the IPO in accordance with the option grant terms resulted in the recognition of $3.5 million in share-based compensation expense in 2020, $1.4 million of which was allocated to research and development expenses based on the time spent supporting research and development activities during the year ended December 31, 2020.

There were no similar

expenses recognized during the year ended December 31, 2021.

This year-over-year decrease was offset by a $2.0 million increase in non-cash share-based compensation from option grants made to other employees during the year ended December 31, 2021;

• an increase of $0.4 million in other expenses, which was primarily related to increases in external consulting expenses.

We expect research and development costs to continue to increase materially in the near future, consistent with our plan to advance our investigational COMP360 psilocybin therapy through clinical development.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for years ended December 31, 2021, and 2020 (in thousands):

• an increase of $6.7 million in external development expenses, which primarily related to $4.6 million for the cost of preclinical studies, $2.6 million in drug development and manufacturing costs, $0.5 million in costs for digital activities and $0.3 million in therapist training costs, offset by a $1.3 million decrease in clinical trial expenses due to the completion of Phase 2 studies;

• an increase of $6.1 million in personnel expenses, primarily as a result of hiring additional personnel in our research and development departments to support the expansion of our digital, preclinical and clinical teams;

• an increase of $2.8 million in non-cash share-based compensation expense due to increased staffing levels year over year, and the inducement grant awarded to our new chief executive officer in August 2022, in addition to a company-wide option grant in February 2022.

There was no similar company-wide grant in 2021;

• an increase of $5.4 million in other expenses, which primarily related to $3.6 million in R&D external consulting expenses, $1.1 million increased pre-commercial spend and $0.7 million in clinical trial insurance, IT and travel costs.

We expect research and development costs to continue to increase substantially in the near future, consistent with our plan to continue to advance our Phase 3 program for COMP360 psilocybin therapy in TRD in 2023 .

General and Administrative

The following table summarizes our general and administrative expenses for the years ended December 31, 2022, and 2021 (in thousands):

Year ended December 31,

7 unchanged sentences

The increase in general and administrative expenses was primarily attributable to the following:

• an increase of $7.9 million in personnel costs, primarily due to an increase in headcount related to the hiring of additional personnel in general, administrative and commercial functions to support our growth initiatives, including operating as a public compan y, in addition to costs related to th e severance amount associated with the recent departure of our prior General Counsel and Chief Legal Officer;

• a decrease of $7.6 million in non-cash share-based compensation primarily related to a large option grant that was granted in May 2020 to one employee, which became fully vested on August 17, 2020, resulting in the recognition of $9.5 million in share-based compensation expense in the year ended December 31, 2020, $7.1 million of which was allocated to general and administrative expenses based on an estimate of time spent indirectly supporting general and administrative activities.

In addition, the vesting of certain other options accelerated upon the IPO in accordance with the option grant terms, resulting in the recognition of $3.5 million in share-based compensation expense in 2020, $2.1 million of which was allocated to general and administrative expenses based on the time spent supporting general and administrative activities.

There was no similar accelerated expense recognized during the year ended December 31, 2021.

The year-over-year decrease was offset by a $1.6 million increase in non-cash share-based compensation which resulted from option grants made to other employees in the year ended December 31, 2021;

• an increase of $1.8 million in legal and professional fees, primarily related to expenses associated with external consulting, patent applications and legal advice as well as costs associated with operating as a public company, including the transition from a foreign private issuer and additional audit fees associated with the loss of Emerging Growth Company status and the requirements of Sarbanes Oxley 404 (b), and other corporate activities as we continue to grow our business compared to legal costs and other indirect fees in the prior period associated with preparing for operations as a public company;

• an increase of $9.0 million in facilities and other expenses, mainly in relation to an increase in director and officer insurance expenses of $3.6 million, patent application costs of $1.0 million, Centers of Excellence costs of $0.8 million, corporate communications strategy and implementation costs of $0.7 million, IT and office supplies, services and software of $1 million, rent of $0.8 million, subscriptions and memberships of $0.4 million and other expenses of $0.7 million, all in line with company growth in 2021.

We expect these general and administrative expenses to materially increase consistent with our plans to increase our headcount as a result of ongoing requirements as a public company, in addition to ongoing research and development growth initiatives.

Total Other Income (Expense), Net

Benefit from Research and Development Tax Credit

During the years ended December 31, 2021 and 2020, we recognized an R&D tax credit from the UK as a benefit within other income (expense), net of $9.6 million and $4.2 million, respectively.

The tax credit receivable increased in 2021 compared to 2020 in line with increased research and development activity.

The 2020 tax credit was received in full in 2021.

Fair value change of convertible notes

Fair value change of convertible notes relates to the convertible notes issued during the year ended December 31, 2019, which were converted to Series B convertible preferred shares in April 2020.

No such change was recognized during the year ended December 31, 2021.

• an increase of $3.2 million in personnel expenses, primarily due to an increase in staffing levels related to the hiring of additional personnel in general, administrative and commercial departments to support our growth initiatives, including operating as a public company;

• an increase of $1.7 million in non-cash share-based compensation expense due to increased staffing levels year over year, and the inducement grant awarded to our new chief executive officer in August 2022, in addition to a company-wide option grant in February 2022.

There was no similar company-wide grant in 2021;

• an increase of $2.8 million in legal and professional fees, primarily related to expenses associated with external consulting, public relations, patent applications and legal advice, as well as continuing costs associated with operating as a public company, and other corporate activities as we continue to grow our business;

• a decrease of $1.5 million in facilities and other expenses, p rimarily attributable to decreases of $1.1 million in insurance costs, $0.6 million in Centers of Excellence costs and $0.2 million in communications costs.

This was offset by an increase of $0.4 million in sponsorships and other donations.

We expect to continue to incur significant general and administrative expenses as a result of ongoing requirements as a public company, in addition to ongoing general and administrative support for research and development growth initiatives.

Other Income (Expense), Net

Other income was $4.1 million for the year ended December 31, 2022 and less than $0.1 million for the year ended December 31, 2021.

The increase in other income primarily related to increased interest income as a result of higher interest rates on cash deposits in addition to a gain of $2.8 million recognized in connection with a forward exchange contract that we entered into and settled in the third quarter of 2022.

Foreign exchange gains (losses)

Foreign exchange gains (losses) increased by $13.7 million to a gain of $2.0 million for the year ended December 31, 2021 from a loss of $11.7 million for the year ended December 31, 2020, primarily related to gains arising from the translation of cash balances generated from the IPO proceeds and the Follow-On Offering proceeds that were maintained in U.S.

Foreign exchange gains decreased by $1.2 million to a gain of $0.8 million for the year ended December 31, 2022 from a gain of $2.0 million for the year ended December 31, 2021, primarily related to gains arising from the translation of cash balances generated from the IPO proceeds and the Follow-On Offering proceeds that were maintained in U.S.

dollars, which is different from the legal entity’s functional currency (Pound Sterling) giving rise to foreign currency gains.

Currently, our US dollar balances are held in a sterling functional currency legal entity and converted as required into pound sterling because the predominant cash outflows are pounds sterling.

As our operating model and business matures we will continually monitor and assess our legal entity structure and whether our future cash outflows continue to be reported in pounds sterling or in US dollars.

• Other income

Other income was less than $0.1 million and $0.3 million for the years ended December 31, 2021 and 2020 respectively.

The decrease in other income primarily related to the decrease in interest income as a result of lower interest rates on cash deposits.

Currently, our U.S.

dollar balances are held in a Pound Sterling functional currency legal entity and converted as required into Pound Sterling because the predominant cash outflows are Pound Sterling.

As our operating model and business develops we will continually monitor and assess our legal entity structure and whether our future cash outflows continue to be reported in Pounds Sterling or in U.S.

dollars, as well as the continuing impact of foreign exchange rates on our results of operations.

Benefit from Research and Development Tax Credit

During the year ended December 31, 2022 and 2021, we recognized an R&D tax credit from the UK as a benefit within other income (expense), net of $14.4 million and $9.6 million, respectively.

The benefit from R&D tax credit increased by $4.8 million in 2022 compared to 2021 in line with increased research and development activities.

Income tax expense

The income tax expense was $0.2 million for the year ended December 31, 2021 and less than $0.1 million for the year ended December 31, 2020.

The income tax expense was related to income tax obligations of our operating company in the U.S., which generates a profit for tax purposes.

Comparison of the Years Ended December 31, 2020 and 2019

The income tax expense was $0.4 million for the year ended December 31, 2022 and $0.2 million for the year ended December 31, 2021 .

The income tax expense was related to income tax obligations of our operating company in the United States, which generates a profit for tax purposes.

Results of Operations

Comparison For The Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020 (in thousands):

8 unchanged sentences

Other income 40 319 (279)

Foreign exchange losses (11,702) (81) (11,621)

Foreign exchange gains (losses) 1,990 (11,702) 13,692

Fair value change of convertible notes — (1,771) 1,771

4 unchanged sentences

Net loss $ (71,742) $ (60,334) $ (11,408)

Research and Development Expenses

Research and Development

The table below summarizes our research and development expenses incurred for the years ended December 31, 2021 and 2020 (in thousands):

8 unchanged sentences

The increase in research and development expenses was primarily attributable to:

• an increase of $4.0 million in development expenses, which primarily related to increases of $2.8 million in clinical trial expenses and $1.8 million in the cost of preclinical studies to assess additional indications for our investigational COMP360 psilocybin therapy development, offset by a decrease of $0.1 million in therapist training costs and $0.5 million in drug development costs;

• an increase of $1.9 million in personnel expenses, as a result of hiring additional personnel in our research and development departments to support the requirements of increased clinical and preclinical activities;

• an increase of $4.5 million in non-cash share-based compensation reflecting a significant charge due in part to 1,015,813 options that were granted in May 2020 to one employee, which fully vested during the year ended December 31, 2020, resulting in the recognition of $9.5 million in share-based compensation expense, $2.4 million, or 25%, of which was allocated to research and development expenses based on the time spent supporting research and development activities.

In addition, the vesting of certain other options accelerated upon completion of our IPO in accordance with the option grant terms, resulting in the recognition of $3.5 million in share-based compensation expense, $1.4 million of which was allocated to research and development expenses based on the time spent supporting research and development activities.

The remaining increase in non-cash share-based compensation of $0.7 million resulted from recurring monthly vesting of existing option grants in addition to further share option grants made to recruit and retain staff to support the increase in our overall research and development activities;

• an increase of $0.4 million in other expenses, which was primarily related to increases in consulting expenses.

General and Administrative Expenses

There were no similar expenses recognized during the year ended December 31, 2021.

This year-over-year decrease was offset by a $2.0 million increase in non-cash share-based compensation from option grants made to other employees during the year ended December 31, 2021;

• an increase of $0.4 million in other expenses, which was primarily related to increases in external consulting expenses.

General and Administrative

The following table summarizes our general and administrative expenses for years ended December 31, 2021, and 2020 (in thousands):

8 unchanged sentences

The increase in general and administrative expenses was primarily attributable to the following:

• an increase of $2.5 million in personnel costs, primarily due to an increase in headcount related to the hiring of additional personnel in general and administrative functions to support our growth initiatives, including our transition to becoming a public company;

• an increase of $10.2 million in non-cash share-based compensation reflecting a significant charge due in part to 1,015,813 options that were granted in May 2020 to one employee which fully vested during the year ended December 31, 2020, resulting in the recognition of $9.5 million in share-based compensation expense, $7.1 million, or 75%, of which was allocated to general and administrative expenses based on the time spent on general and administrative activities.

In addition, the vesting of certain other options accelerated upon the IPO in accordance with the option grant terms, resulting in the recognition of $3.5 million in share-based compensation expense, $2.1 million of which was allocated to general and administrative expenses based on the time spent supporting general and administrative activities.

The remaining increase of $1.0 million in non-cash share-based compensation also resulted from recurring monthly vesting of existing option grants in addition to further share option grants made to recruit and retain staff to support the requirements of increased general, administrative and commercial activities;

• an increase of $4.2 million in legal and professional fees, primarily related to additional costs incurred in association preparing for life as a public company ($1.8 million) and our other corporate activities as we continue to grow our business;

• an increase of $2.5 million in facilities and other expenses, including rent ($0.6 million), depreciation ($0.1 million), IT supplies and services ($0.3 million), subscriptions ($0.1 million) and insurance ($1.1 million) in addition to a number of additional individually immaterial other expenses

• an increase of $7.9 million in personnel costs, primarily due to an increase in staffing levels related to the hiring of additional personnel in general, administrative and commercial functions to support our growth initiatives, including operating as a public company, in addition to costs related to the severance amount associated with the departure of our prior General Counsel and Chief Legal Officer;

There was no similar accelerated expense recognized during the year ended December 31, 2021.

The year-over-year decrease was offset by a $1.6 million increase in non-cash share-based compensation which resulted from option grants made to other employees in the year ended December 31, 2021;

Total Other Income (Expense), Net

Benefit from Research and Development Tax Credit

During the years ended December 31, 2020 and 2019, we recognized an R&D tax credit from the UK as a benefit within other income (expense), net for $4.2 million and $2.7 million, respectively.

During the years ended December 31, 2021 and 2020, we recognized an R&D tax credit from the UK as a benefit within other income (expense), net of $9.6 million and $4.2 million, respectively.

The tax credit receivable increased in 2021 compared to 2020 in line with increased research and development activity.

The 2020 tax credit was received in full in 2021.

Fair value change of convertible notes

The change during the year ended December 31, 2020 resulted from the fair value change of the convertible notes which increased by $0.7 million to $1.8 million during the year ended December 31, 2020 from $1.1 million during the year ended December 31, 2019.

The convertible notes automatically converted into preferred shares upon completion of the Series B on April 17, 2020, which were then converted to ordinary shares upon our IPO on September 22, 2020.

Fair value change of convertible notes relates to the convertible notes issued during the year ended December 31, 2019, which were converted to Series B convertible preferred shares in April 2020.

No such change was recognized during the year ended December 31, 2021.

Foreign exchange gains (losses)

Foreign exchange losses increased by $11.6 million to $11.7 million for the year ended December 31, 2020 from $0.1 million for the year ended December 31, 2019, primarily related to an increase in exchange losses arising from the translation

of cash balances generated from the issuance of Series B convertible preferred shares during the second quarter of 2020 and the issuance of ADSs upon our IPO that were maintained in U.S.

dollars, which was different from the legal entity’s functional currency (pound sterling), giving rise to foreign currency losses.

Currently, the legal entity which holds U.S.

dollars is a pounds sterling functional currency legal entity as the predominant cash outflows in the entity are pounds sterling.

• Other income

Other income increased by $0.2 million to $0.3 million for the year ended December 31, 2020 from $0.1 million for the year ended December 31, 2019, mainly due to a $0.2 million increase in interest income as a result of higher cash balances due to completing both the Series B and IPO funding.

dollars, which is different from the legal entity’s functional currency (Pound Sterling) giving rise to foreign currency gains.

Currently, our US dollar balances are held in a sterling functional currency legal entity and converted as required into pound sterling because the predominant cash outflows are pounds sterling.

Other income was less than $0.1 million and $0.3 million for the years ended December 31, 2021 and 2020 respectively.

The decrease in other income primarily related to the decrease in interest income as a result of lower interest rates on cash deposits.

Income tax expense

The income tax expense was less than $0.1 million for the year ended December 31, 2020 and 2019.

The income tax expense was $0.2 million for the year ended December 31, 2021 and less than $0.1 million for the year ended December 31, 2020.

The income tax expense was related to income tax obligations of our operating company in the U.S., which generates a profit for tax purposes.

4 unchanged sentences

We have funded our operations to date primarily with proceeds from the sale of convertible preferred shares, convertible loan notes and ADSs in our IPO and our Follow-On Offering.

Through December 31, 2021, we had received net cash proceeds of $116.4 million from sales of our convertible preferred shares and convertible loan notes, $132.8 million net proceeds from sales of ADSs through our IPO, and $154.8 million in net proceeds from our Follow-On Offering.

We believe our existing cash balance of $273.2 million at December 31, 2021 will be sufficient for us to fund our operating expenses and capital expenditure requirements into 2024.

Through December 31, 2022, we had received net cash proceeds of $116.4 million from sales of our convertible preferred shares and convertible loan notes, $132.8 million in net proceeds from sales of ADSs through our IPO, and $154.8 million in net proceeds from our Follow-On Offering.

Through December 31, 2022, we had received net cash proceeds of $0.4 million through sales of ADSs under our ATM facility.

We believe our existing cash balance of $143.2 million at December 31, 2022 will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next twelve months.

The following table summarizes our cash flows for each of the periods (in thousands):

5 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash (24,959) (5,576) 13,225

Net increase in cash $ 82,991 $ 165,372 $ 2,077

Net (decrease)/increase in cash, cash equivalents and restricted cash $ (129,966) $ 82,991 $ 165,372

Net Cash Used in Operating Activities

During the year ended December 31, 2022, net cash used in operating activities was $105.5 million, primarily resulting from our net loss of $91.4 million offset by a non-cash gain on foreign currency remeasurement of $1.1 million, non-cash share-based compensation expenses of $13.1 million, depreciation and amortization of $0.3 million, and non-cash lease expenses of $2.1 million.

The net loss was also adjusted by $30.7 million related to changes in components of working capital, including a $28.8 million increase in prepaid expenses and other current assets which primarily related to the R&D tax credit receivable and prepaid research and development expense, an increase in deferred and prepaid tax assets of $1.7 million, a $0.3 million increase in other assets related to increased implementation costs, a $0.3 million decrease in accrued expenses and other liabilities and a $2.0 million decrease in operating lease liabilities, offset by a $2.5 million increase in accounts payable which primarily relates to research and development invoices received in the quarter.

During the year ended December 31, 2021, net cash used in operating activities was $67.7 million, primarily resulting from our net loss of $71.7 million offset by non-cash share-based compensation expense of $8.6 million, depreciation and amortization of $0.2 million, and non-cash lease expenses of $1.8 million.

2 unchanged sentences

During the year ended December 31, 2020, net cash used in operating activities was $41.4 million, primarily resulting from our net loss of $60.3 million, offset by non-cash share-based compensation expense of $18.0 million, depreciation and amortization of $0.1 million and a loss due to the change in fair value of our convertible notes of $1.8 million.

The net loss was also adjusted by $0.9 million related to changes in components of working capital, including a $4.5 million increase in

prepaid expenses and other current assets which primarily related to the R&D tax credit receivable and prepaid insurance, a $0.2 million increase in deferred tax assets, offset by a $3.9 million increase in accounts payable and accrued expenses which related to increased research and development expenses, incurred in our preclinical and clinical trials and increased general and administrative spending resulting from increased professional and legal expenses we incurred in conjunction with our preparation for becoming a public company.

During the year ended December 31, 2019, net cash used in operating activities was $17.8 million, primarily resulting from our net loss of 19.6 million, o ffset by non-cash share-based compensation of $3.3 million and the loss due to the change in fair value of our convertible notes of $1.1 million.

The net loss was also adjusted by $2.7 million related to changes in components of working capital, including a $3.4 million increase in prepaid expenses and other current assets which related to the R&D tax credit receivable, and a $0.8 million increase in accounts payable and accrued expenses which relate to increased research and development expenses incurred in our preclinical and clinical trials and increased general and administrative spending resulting from increased professional and legal expenses we incurred in conjunction with our preparation for a Series B.

The net loss was also adjusted by $0.9 million related to changes in components of working capital, including a $4.5 million increase in prepaid expenses and other current assets which primarily related to the R&D tax credit receivable and prepaid insurance, a $0.2 million increase in deferred tax assets, offset by a $3.9 million increase in accounts payable and accrued expenses which related to increased research and development expenses, incurred in our preclinical and clinical trials and increased general and administrative spending resulting from increased professional and legal expenses we incurred in conjunction with our preparation for becoming a public company.

Net Cash Used in Investing Activities

During the year ended December 31, 2021, net cash used in investing activities was $0.3 million, primarily driven by our purchases of property and equipment, which largely consisted of lab and office equipment.

During the years ended December 31, 2022 and 2021, net cash used in investing activities was $0.6 million and $0.3 million respectively, primarily driven by our purchases of property and equipment, which largely consisted of lab and office equipment.

During the year ended December 31, 2020, net cash used in investing activities was $0.6 million, comprising the $0.5 million investment to acquire an 8% (on a fully diluted basis) shareholding in Delix Therapeutics, Inc., a drug discovery and development company researching novel small molecules for use in central nervous system indications, and $0.1 million in purchases of property and equipment.

During the year ended December 31, 2019, net cash used in investing activities was $0.2 million, primarily driven by our purchases of property and equipment, which largely consisted of operating and computer equipment.

Net Cash Provided by Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities was $1.0 million, primarily related to proceeds from exercise of options of $0.4 million, proceeds from the issuance of ordinary shares through our ATM facility of $0.4 million and proceeds from the issuance of shares under the employee share purchase plan of $0.2 million.

During the year ended December 31, 2021, net cash provided by financing activities was $156.6 million, primarily related to the net proceeds from the Follow-On Offering of $154.8 million and options exercises of $1.8 million.

During the year ended December 31, 2020, net cash provided by financing activities was $194.2 million, primarily related to $61.3 million net cash proceeds from our sale and issuance of Series B convertible preferred shares and $132.8 million net cash proceeds from our sale and issuance of ADSs upon the IPO.

During the year ended December 31, 2019, net cash provided by financing activities was $18.4 million, consisting of net cash proceeds from our issuance of convertible notes in 2019.

Effect of exchange rate changes on cash, cash equivalents and restricted cash

During the year ended December 31, 2022 the effect of exchange rate changes on cash, cash equivalents and restricted cash resulted in an exchange loss of $25.0 million compared with a loss of $5.6 million in the same period in the prior year and a gain of $13.2 million in 2020, primarily driven by movements in exchange rates from period to period, resulting in exchange losses on cash balances which are held in entities with Pound Sterling functional currencies and translated to U.S.

dollars, the reporting currency.

Funding Requirements

We expect our expenses to continue to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities, manufacturing and clinical trials of COMP360.

In addition, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

We expect our expenses to continue to increase substantially in connection with our ongoing activities, particularly as we advance our Phase 3 clinical program of COMP360 in TRD and continue to advance the preclinical activities, manufacturing and Phase 2 clinical trials of COMP360.

In addition, we expect to continue to incur significant costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

Our expenses will also increase as we:

• continue the clinical development of our investigational COMP360 psilocybin therapy in active clinical trial sites across Europe and North America including costs associated with conducting a Phase III program in TRD;

• prepare for the Phase II studies outlined under ‘Additional Clinical Trials’ in Item 1:

Business, including evaluating the safety and tolerability of COMP360 psilocybin therapy in patients suffering with PTSD;

• establish relationships with the network of public healthcare institutions and private clinics that will administer our investigational COMP360 psilocybin therapy;

• continue the training of qualified therapists, psychiatrists and other healthcare professionals to deliver our investigational COMP360 psilocybin therapy;

• continue the clinical development of our investigational COMP360 psilocybin therapy in active clinical trial sites across Europe and North America, including costs associated with conducting our Phase 3 program in TRD;

• conduct Phase 2 studies evaluating the safety and tolerability of COMP360 psilocybin therapy in patients suffering with anorexia nervosa and PTSD;

• establish relationships with the network of public healthcare institutions and private clinics that will administer our investigational COMP360 psilocybin therapy, if approved;

• continue the training of qualified therapists, psychiatrists and other healthcare professionals to deliver our investigational COMP360 psilocybin therapy in our clinical trials;

• establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any therapeutic candidates, therapy sessions, or digital support, for which we may obtain regulatory approval, including COMP360;

9 unchanged sentences

• incur additional legal, accounting and other expenses associated with operating as a public company listed in the United States;

In addition, the Sarbanes-Oxley Act, as well as rules adopted by the Securities and Exchange Commission, or SEC, requires public companies to implement specified corporate governance practices.

Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting for the year ending December 31, 2021.

To achieve compliance with Section 404, we have been engaged in a process to document and evaluate our internal control over financial reporting, which has been both costly and challenging.

These costs also increased due to our loss of Emerging Growth Company status and the need for auditor attestation on internal control .

In this regard, we will need to continue to dedicate internal resources, to engage outside consultants and implement a continuous reporting and improvement process for internal control over financial reporting.

We expect these rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

We believe our existing cash of $273.2 million at December 31, 2021 will be sufficient for us to fund our operating expenses and capital expenditure requirements into 2024.

We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

• work to accelerate research of emerging psychedelic therapies through our partnership with Sheppard Pratt.

We believe our existing cash of $143.2 million at December 31, 2022 will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next twelve months.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

As we progress with our development programs and the regulatory review process, we expect to incur significant commercialization expenses related to product manufacturing, pre-commercial activities and commercialization.

1 unchanged sentence

Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

• the progress, timing and completion of preclinical testing and clinical trials for COMP360 for the treatment of TRD, and for indications outside of TRD or any future therapeutic candidates outside of TRD, including PTSD;

• the progress, timing and completion of our Phase 3 clinical program for COMP360 for the treatment of TRD, and for indications outside of TRD or any future therapeutic candidates outside of TRD, including anorexia nervosa and PTSD;

• the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA, the EMA, the MHRA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or change their requirements on studies that had previously been agreed to;

1 unchanged sentence

• the number of potential new therapeutic candidates we identify and decide to develop, either internally through our research and development efforts or externally through acquisitions, licensing or other collaboration agreements;

• the costs involved with establishing Centers of Excellence to serve as research facilities and innovation labs, in line with our ambition to create a new mental health care model;

• the costs involved with establishing and maintaining Centers of Excellence to serve as research facilities and innovation labs, in line with our ambition to create a new mental health care model;

• the cost involved with hiring additional personnel in our research and development department to support the expansion of our digital activities;

6 unchanged sentences

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

Additional financing may not be available at all or on acceptable terms.

To the extent that we raise additional capital through the sale of equity, current ownership interests will be diluted.

If we raise additional funds through government or third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish future revenue streams, research programs or therapeutic candidates or grant licenses on terms that may not be favorable to us.

Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Debt financing, if available, may involve high interest rates or agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or therapeutic candidates that we would otherwise prefer to develop and market ourselves.

8 unchanged sentences

As part of the process of preparing our consolidated financial statements, we are required to estimate our prepaid and accrued research and development expenses.

This process involves reviewing open contracts and purchase orders,

communicating with our 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 costs.

This process involves reviewing open contracts and purchase orders, communicating with our 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 costs.

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

6 unchanged sentences

• CMOs in connection with drug substance and drug product formulation of preclinical study and clinical trial materials.

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

studies and 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.

21 unchanged sentences

Included in the total employment costs are judgements and estimates relating to the allocation of time spent on R&D activities by individual.

These estimates are based on real time data

such as time spent by various team members, considerations given for non-R&D related events and general day to day activities.

These estimates are based on real time data such as time spent by various team members, considerations given for non-R&D related events and general day to day activities.

The estimates are based on the most accurate representation of the total time spent on qualifying R&D activities.

1 unchanged sentence

The costs incurred relate directly to the pursuit of R&D activities by the company.

We have recorded a benefit from the R&D tax credit in other income, net of $9.6 million and $4.2 million for the years ended December 31, 2021 and 2020, respectively.

We have recorded a benefit from the R&D tax credit in other income, net $14.4 million, $9.6 million and $4.2 million for the years ended December 31, 2022, 2021 and 2020 respectively.

The refund is denominated in pounds sterling and, therefore, the receivable is remeasured into U.S.

1 unchanged sentence

As of December 31, 2022 and 2021, our tax incentive receivable from the UK government was $14.0 million and $9.6 million, respectively.

The 2021 credit claimed at £7.1 million was receipted in full in 2022 at an amount of $8.5 million.

Share-Based Compensation

12 unchanged sentences

We estimate the fair value of each share options grant using the Black-Scholes option-pricing model, which uses as inputs the fair value or estimated fair value before our IPO, of our ordinary shares and assumptions we make for the volatility of our ordinary shares, the expected term of our share options, the risk-free interest rate for a period that approximates the expected term of our share options and our expected dividend yield.

We determined the assumptions for the Black-Scholes option-pricing model as discussed below.

We determined the key assumptions for the Black-Scholes option-pricing model as discussed below.

Each of these inputs is subjective and generally requires significant judgment to determine.

5 unchanged sentences

If any of the assumptions used in the Black-Scholes model change significantly, share-based compensation for future awards may differ materially compared with the awards granted previously.

Valuation of Convertible Notes

The convertible notes were valued using a scenario-based discounted cash flow analysis.

Two primary scenarios were considered and probability weighted to arrive at the valuation conclusion for each convertible note.

The first scenario considered the value impact of conversion at the stated discount to the issue price if we raise over £ 25.0 million in an equity financing before the first anniversary of the issuance date, or the Qualified Financing, while the second scenario assumed the convertible notes are held to maturity.

As of the issuance date of the convertible notes, an implied yield was calculated such that the probability weighted value of the convertible note was equal to the principal investment amount.

The average implied yield of previously issued convertible notes is carried forward and used as the primary discount rate for subsequent valuation dates.

We determined the fair value of the convertible notes based on the proceeds received for the convertible notes;

the terms of the convertible notes, including the rate at which the notes convert into the Qualified Financing securities;

the probability and timing of a qualified equity financing;

and the fair value of the underlying convertible preferred shares.

Estimates and assumptions impacting the fair value measurement include the probability of a qualified equity financing as defined in the convertible notes’ agreement, the expected timing of such event, and the then fair value of our convertible preferred shares.

We estimated the probability and timing of the qualified equity financing based on our assumptions and knowledge of specified events at issuance and as of each reporting date.

On April 17, 2020, the Company closed a Series B funding round to secure an additional $80.0 million of funding, including the conversion of the $18.4 million (£15.0 million) convertible loan notes issued in 2019 through the issuance of new B convertible preference shares (See Note 8).

At December 31, 2021, the Company did not hold any convertible notes.

Effective January 1, 2021, the Company accounts for leases in accordance with ASC 842, Leases (“ASC 842”).

At contract inception, the Company determines if an arrangement is or contains a lease.

A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

If an arrangement is determined to be or contain a lease, the lease is assessed for classification as either an operating or finance lease at the lease commencement date, defined as the date on which the leased asset is made available for use by the Company, based on the economic characteristics of the lease.

When determining the expected accounting lease term, the Company includes the noncancellable lease term, together with periods covered by (i) an option to extend the lease if the Company is reasonably certain to exercise such option, (ii) an option to terminate the lease if the Company is reasonably certain not to exercise such option and (iii) an option to extend or not terminate the lease where the exercise of such option is controlled by the lessor.

The Company has elected the short-term lease exemption, which allows the Company to not recognize lease liabilities and right-of-use assets arising from lease arrangements with lease terms of twelve months or less.

For each lease with a term greater than twelve months, the Company records a right-of-use asset and lease liability.

A right-of-use asset represents the economic benefit conveyed to the Company by the right to use the underlying asset over the lease term.

A lease liability represents the Company’s obligation to make lease payments under the arrangement.

The Company measures its lease liabilities at lease commencement as the present value of the future lease payments in the contract using the rate implicit in the contract, when available.

As an implicit rate has not historically been readily determinable, the Company uses an incremental borrowing rate measured as the rate at which the Company could borrow, on a fully collateralized basis, a commensurate loan in the same currency over a period consistent with the lease term at the commencement date.

The Company measures its right-of-use assets as the lease liability plus initial direct costs and prepaid lease payments, less lease incentives granted by the lessor.

Components of a lease are split into three categories:

lease components, non-lease components, and non-components.

The fixed and in-substance fixed contract consideration (including any consideration related to non-components) are allocated, based on the respective relative fair values, to the lease components and non-lease components.

The Company has elected to account for lease and associated non-lease components together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only.

The Company remeasures right-of-use assets and lease liabilities when a lease is modified, and the modification is not accounted for as a separate contract.

A modification is accounted for as a separate contract if the modification grants the Company an additional right of use not included in the original lease arrangement and the increase in lease payments is

commensurate with the additional right of use.

The Company assesses its right-of-use assets for impairment in a manner consistent with its assessment for long-lived assets held and used in operations.

The Company’s operating leases are presented in the consolidated balance sheets as operating lease right-of-use assets, classified as non-current assets, and operating lease liabilities, classified as current and non-current liabilities.

Operating lease expense is recognized on a straight-line basis over the lease term.

Variable costs associated with a lease, such as maintenance and utilities, are not included in the measurement of the lease liabilities and right-of-use assets but rather are expensed when the events determining the amount of variable consideration to be paid have occurred.

Emerging Growth Company Status

On April 5, 2012, the JOBS Act was enacted.

The JOBS Act provides that, among other things, an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards.

As an emerging growth company, we elected to use the extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, our financial statements were not comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We were able to take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company.

As of June 30, 2021, the market value of our common stock that was held by non-affiliates exceeded $700.0 million, and, as a result, we no longer qualified for “emerging growth company” status on December 31, 2021.

As of January 1, 2022, we are no longer able to rely on certain of the exemptions and reduced reporting requirements provided by the JOBS Act.

After December 31, 2021, as a large accelerated filer, we are now subject to certain disclosure requirements that are applicable to other public companies that were not applicable to us as an emerging growth company.

These requirements include:

(i) compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting;

(ii) compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

(iii) full disclosure obligations regarding executive compensation;

and (iv) compliance with the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

In addition, we are no longer able to take advantage of transition periods for complying with new or revised accounting standards that are available to emerging growth companies.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report.

Smaller Reporting Company Status

Based on the market value of shares held by non-affiliates on June 30, 2022, we are a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act and have exited the “large accelerated filer” status as of December 31, 2022.

We may take advantage of certain of the scaled disclosures available to smaller reporting companies.

These include, but are not limited to, reduced disclosure obligations regarding executive compensation and an exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures.

As a smaller reporting company with annual revenues of less than $100.0 million, we are also not required to provide an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

We will be able to take advantage of these scaled disclosures and exemptions for so long as (i) our voting and non-voting

shares held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting shares held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

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