What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-08 · 78 added, 148 removed, 65 unchanged (78% of the section changed)

3 unchanged sentences

Leveraging our scientific insights and clinical experience, we have acquired or in-licensed compounds that we believe have innovative mechanisms of actions and therapeutic profiles that potentially address the unmet needs of patients with these diseases.

We are developing roluperidone (f/k/a MIN-101) for the treatment of negative symptoms in patients with schizophrenia and MIN-301 for the treatment of Parkinson’s disease.

In addition, we previously co-developed seltorexant (f/k/a MIN-202 or JNJ-42847922) with Janssen Pharmaceutica NV (“Janssen”) for the treatment of insomnia disorder and adjunctive treatment of Major Depressive Disorder (“MDD”).

We are developing roluperidone for the treatment of negative symptoms in patients with schizophrenia and have exclusive rights to develop and commercialize MIN-301 for the treatment of Parkinson’s disease.

In addition, we previously co-developed seltorexant with Janssen Pharmaceutica NV (“Janssen”) for the treatment of insomnia disorder and adjunctive treatment of Major Depressive Disorder (“MDD”).

During 2020, we exercised our right to opt out of a joint development agreement with Janssen for the future development of seltorexant.

1 unchanged sentence

In January 2021, we sold our rights to these potential royalties to Royalty Pharma plc (“Royalty Pharma”).

On November 30, 2020 we received official meeting minutes from our November 10, 2020 Type C meeting with the U.S.

Food and Drug Administration (“FDA”) regarding the development of roluperidone for treatment of negative symptoms of schizophrenia.

The objective of this meeting was to obtain FDA input regarding the roluperidone data package and its readiness to support a New Drug Application (“NDA”).

We summarized FDA’s comments in our 10-K filed on March 8, 2021.

On November 3, 2021 we announced that the FDA denied our request for a pre-NDA meeting for roluperidone and responded that a Type C guidance meeting would be more appropriate to discuss the evidence for use of roluperidone as monotherapy.

Subject to the timing of and feedback from the FDA at a Type C guidance meeting, which we plan to request, we have not changed our projected timeline for submission of an NDA in the first half of 2022.

We have not received regulatory approvals to commercialize any of our product candidates, and we have not generated any revenue from the sales or license of our product candidates.

We have incurred significant operating losses every year since inception.

We expect to incur net losses and negative cash flow from operating activities for the foreseeable future in connection with the clinical development and the potential regulatory approval, infrastructure development and commercialization of our product candidates.

Clinical and Regulatory Update

Open Label Extension

On May 11, 2021, we announced results from the 40-week open-label extension (OLE) of the Company’s phase 3 trial of roluperidone for the treatment of negative symptoms (NS) of schizophrenia.

The OLE followed the 12-week double-blind, placebo-controlled portion of this trial.

During the 40-week OLE, both investigators and patients were blinded to the roluperidone dose received.

The OLE was designed to evaluate the safety of roluperidone after long-term exposure.

Efficacy endpoints were also assessed during the OLE period.

As such, efficacy data collected during the OLE are not placebo-controlled and therefore their interpretation is limited.

Over the 40-week OLE period, 333 patients participated, of whom 166 patients received the 32 mg dose and 167 patients received the 64 mg dose.

A total of 202 of the 333 patients completed the 40-week OLE period.

The mean improvement in negative symptoms was 6.8 points in the 32 mg arm and 7.5 points in the 64 mg arm.

PSP total score improved by a mean of 12.3 points in the 32 mg arm and 14.5 points in the 64 mg arm, suggesting functional improvement.

The mean improvement in positive symptoms, as measured by the Positive and Negative Syndrome Scale (“PANSS”) positive symptom subscore was 1.9 points in the 32 mg arm and 1.8 points in the 64 mg arm.

Reduced emotional experience, as measured by a sub-factor of the Negative Symptoms Factor Score (“ NSFS”) that assesses a patient’s motivation to take part in everyday life activities, had a mean improvement of 2.8 points in the 32 mg group and 3.0 points in the 64 mg group.

The relapse rate during the OLE, defined as patients being withdrawn from the trial due to worsening of symptoms of psychosis, was 15 patients out of 166 patients (9%) in the 32 mg arm and 10 patients out of 167 patients (6%) in the 64 mg arm.

Over the one-year duration the relapse rate was 11.7% overall.

Roluperidone at both doses was safe and well tolerated and treatment-emergent adverse events (TEAE) were generally mild to moderate in severity.

The most frequently reported TEAE in the overall group of 333 patients that participated in the OLE were headaches in 26 patients (7.8%), followed by worsening of schizophrenia in 18 patients (5.4%) and insomnia in 15 patients (4.5%).

No other TEAE was reported by more than 4% of the patients.

There was one death that occurred after treatment discontinuation (45-year old male) in the 64 mg arm due to treatment-unrelated respiratory failure.

Twenty patients (6%) experienced serious adverse events, with the majority of them associated with the disease characteristics, and only 5 were judged by the investigator to be related to roluperidone.

In total, 37 patients (11%) did not complete the OLE due to TEAE, with 25 patients (7.5%) due to relapse-related events and the remaining 12 patients due to a variety of other TEAE reported in ≤1% of the patients.

Few QT prolongations were observed during the OLE, were generally transient in duration and only one in the 64 mg arm led to discontinuation from the study.

As previously announced on May 29, 2020, the double-blind, placebo-controlled portion of the Phase 3 trial enrolled a total of 515 patients that were randomized in a 1:1:1 ratio to 32 mg/day roluperidone, 64 mg/day roluperidone, or placebo for 12 weeks, and 513 patients received study drugs.

The 12-week double-blind, placebo-controlled portion of the trial did not meet its primary or key secondary endpoints in the intent-to-treat population.

The 32 mg and 64 mg doses were not statistically significantly different from placebo at week 12 on the primary endpoint of NSFS (p ≤0.259 and p ≤0.064, respectively), or on the key secondary endpoint, PSP total score (p ≤0.542 and nominal p ≤0.021, respectively).

The subsequent analysis of the change in baseline in NSFS and PSP total score based on the modified ITT population treated with the 64 mg dose resulted in nominally statistically significant p ≤0.044 and p ≤0.017, respectively.

Pivotal Bioequivalence Study

On September 30, 2021, we announced results from a pivotal bioequivalence study comparing the roluperidone formulations used in our late-stage Phase 2b, Phase 3 trials, and the planned commercial formulation.

The planned commercial formulation was tested under both fasted and fed condition.

The study met key pharmacokinetic (PK) objectives, and the data demonstrate bioequivalence across the various formulations.

Subject screening in this study was initiated on April 23, 2021, the completion of the enrollment of 48 healthy volunteers was achieved on June 29, 2021, and the last subject assessment took place on July 26, 2021.

Subjects were randomized to the four treatment sequences described above in a 1:1:1:1 ratio.

Of the 48 subjects randomized, 45 completed all study periods.

Male subjects constituted 69% of the participants, and 75% of the subjects were white.

Median age was 36 years, and all had negative SARS-CoV2 status at the beginning of the study and of every study period with the exception of 1 subject who tested positive at the beginning of study Period 4 and was discontinued.

The mean body mass index was 28.1±4 kg/m 2 .

The results demonstrate the comparability of the formulations used in the late-stage efficacy and safety trials of roluperidone with the planned commercial formulation and allow administration of the drug with or without food.

In June 2020 we exercised our right to opt out of our agreement with Janssen for the future Phase 3 development and commercialization of seltorexant.

Under the terms of the opt-out agreement, we are entitled to collect royalties in the mid-single digits on potential future worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen.

In January 2021 we sold our rights to these potential royalties to Royalty Pharma for a $60 million cash payment and up to an additional $95 million in potential milestone payments, subject to completion of the Phase 3 program by Jansen and regulatory approvals .

As a result of the sale, we will recognize non-cash interest expense related to the amortization of estimated future royalty payments to Royalty Pharma.

Accordingly, for the three and nine months ended September 30, 2021, we recognized $1.7 million and $4.6 million in non-cash interest expense related to this agreement.

The $60 million payment received from Royalty Pharma has been included on our balance sheet under Liability related to the sale of future royalties.

As we recognize interest expense, the Liability related to the sale of future royalties will increase until such time that we begin to receive the related royalty payments.

Under the terms of the agreement, all payments from Royalty Pharma to Minerva, including the initial upfront payment of $60 million as well as amortized interest expense, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any reason.

Clinical and Regulatory Updates

On April 7, 2022 we announced the results from the Type C meeting held on March 2, 2022 with the U.S.

Food and Drug Administration’s (“FDA”) Division of Psychiatry (the “Division”) of the Office of Neuroscience regarding roluperidone’s use as a monotherapy for negative symptoms.

The Division agreed that there is an unmet need for negative symptom treatments and restated its position following the November 2020 Type C meeting in which they indicated a marketing application was highly unlikely to be filed.

The Division also stated at the November 2020 meeting that, at a minimum, there would be substantial review issues due to the lack of two adequate and well-controlled trials to support efficacy claims for this novel indication.

The Division acknowledged at the time that the studies appear to show promising signals and encouraged us to continue the drug development program for this indication.

Since the Type C meeting in November 2020, we have completed the Open-label extension of the Phase 3 study and have continued to develop roluperidone as a monotherapy specifically for the treatment of negative symptoms of schizophrenia in the subgroup of patients with moderate to severe negative symptoms and stable positive symptoms.

The Division advised that several important and substantial concerns remain, including:

the applicability of the results of the Phase 2b study (conducted in Europe) to the U.S.

We presented data in the briefing document sent to the Division in advance of the meeting showing comparable baseline data and efficacy across both U.S.

patients in the Phase 3 study.

the proposed use of post hoc analyses for the primary endpoint results of the Phase 3 study.

The Division added that even with the exclusion of one trial site that we believe to be subject to potential data integrity issues, the overall study remains negative.

For the Phase 3 study to be positive, where the truncated Hochberg procedure was used to control the overall Type I error, both roluperidone doses must be statistically significant versus placebo, which was not the case for the 32 mg dose.

We confirmed in post-meeting follow-up that the exclusion of one site had been prespecified in the SAP submitted to the Division in May 2020 before the unblinding of the double-blind data.

Excluding the trial site with data integrity issues resulted in a nominal p-value of 0.044 on the primary endpoint for the 64 mg dose.

In the Phase 2b study the 64 mg and the 32 mg doses of roluperidone achieved statistical significance versus placebo.

The Division sought reassurance that we could reliably identify patients who do not need antipsychotics and how to evaluate the stability of those patients, and potential recurrence of positive symptoms of those patients, what would be considered a significant change in symptoms, how much time patients should be monitored to evaluate whether positive symptoms will recur, and what should

be done if positive symptoms recur.

We informed the Division that we believe this patient population can be readily identified by clinicians, that this patient population presents commonly in clinical practice, that there is an unmet need for treatments for these patients and that we expect that the population could be clearly characterized in product labelling.

The Division pointed out that prescribers are likely to use roluperidone in a way that differs significantly from the intended monotherapy use, noting that at this time, there are no data to show that roluperidone does not interfere with the safety or efficacy of antipsychotic medications.

We stated that we believe that findings from the completed Phase 2b (MIN101-C03) and Phase 3 (MIN101-C07) studies, (in which roluperidone was administered in monotherapy without concomitant use of antipsychotic medications), demonstrate continued stability of positive symptoms in patients over time.

We stated that the relapse rate in these trials was less than 15% of the treated population compared to relapse rates of more than 25% in other trials in which patients were treated with antipsychotics.

Following the meeting, we submitted additional data to the Division from the Phase 2b and Phase 3 studies demonstrating that roluperidone does not interfere with the efficacy of antipsychotics in patients who suffered relapse and withdrew from the studies.

The Division confirmed that results from the pivotal bridging Bioequivalence study appear to be adequate for a future acceptable New Drug Application (“NDA”) submission but advised that final confirmation of this would be a matter of review and also acknowledged that our initial pediatric study plan (“iPSP”) dated November 28, 2017, remains in force.

We continue to believe that we have conducted two adequate and well controlled studies for the intended indication, and that the data from these studies are sufficient to support a marketing application.

We view the concerns raised regarding the data from the Phase 2b and Phase 3 studies as those that FDA would ordinarily consider during its review of an NDA.

At the end of the meeting, the Division suggested that there may be a way to address its concerns, whether the completed studies provide substantial evidence that negative symptoms are responsive to roluperidone, concurrently with the questions about positive symptoms and coadministration with antipsychotic medication through the acquisition of additional data.

The Division advised that collection of additional data could begin in parallel with our preparations for a potential marketing application and need not be deferred until a determination about submission or filing of the application has been made.

Subject to the timing and feedback from the FDA, we continue to prepare for a potential submission of an NDA for roluperidone during the third quarter of 2022.

Financial Overview

None of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates.

Collaborative Revenue.

During 2020 we exercised our right to opt out of the joint development agreement with Janssen for the future development of seltorexant.

As a result, we have no future obligations under the agreement and recognized approximately $41.2 million in collaborative revenue during 2020, which we had previously included on our balance sheet under deferred revenue.

Research and Development Expenses.

Research and development expenses consists of costs incurred in connection with the development of our product candidates, including:

fees paid to consultants and clinical research organizations (“CROs”) including in connection with our non-clinical and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis;

licensing fees;

costs related to acquiring clinical trial materials;

costs related to compliance with regulatory requirements;

and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions.

We expense research and development costs as they are incurred.

Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict.

We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment as to each product candidate’s commercial potential.

We will need to raise additional capital or may seek additional product collaborations in the future in order to complete the development and commercialization of our product candidates.

Research and development costs are expensed as they are incurred and consist principally of costs incurred in connection with the development of our product candidates including:

fees paid to consultants and clinical research organizations (“CROs”), investigator grants, patient screening, lab work, database management, material management, statistical analysis, license fees, regulatory compliance, and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions.

Completion dates and costs can vary significantly by product candidate and are difficult to predict.

We anticipate making determinations as to which programs to pursue and the level of funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment of each product candidate’s commercial potential.

We will need to raise additional capital or may seek additional product collaborations in the future to complete the development and commercialization of our product candidates.

General and Administrative Expenses.

General and administrative expenses consist principally of costs for functions in executive, finance, legal, auditing and taxes.

Our general and administrative expenses include salaries, bonuses, facility and information system costs and professional fees for auditing, accounting, consulting and legal services.

General and administrative costs also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff.

We expect to continue to incur general and administrative expenses related to operating as a publicly traded company, including increased audit and legal fees, costs of compliance with securities laws, corporate governance and other regulations, investor relations expenses and higher insurance premiums.

General and administrative costs are expensed as they are incurred and consist principally of costs for facility and information systems, professional fees for auditing, consulting and legal services and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in administrative functions.

General and administrative expenses also include costs for maintaining a publicly listed company including increased audit and legal fees, compliance with securities laws, corporate governance and investor relations.

Foreign Exchange (Losses) Gains.

Foreign exchange (losses) gains are comprised primarily of losses and gains of foreign currency transactions related to clinical trial expenses denominated in Euros.

Since our current clinical trials are conducted in Europe, we incur certain expenses in Euros and record these expenses in United States Dollars at the time the liability is incurred.

Changes in the applicable foreign currency rate between the date an expense is recorded and the payment date is recorded as a foreign currency loss or gain.

We expect to continue to incur future expenses denominated in Euros as certain of our planned clinical trials are expected to be conducted in Europe.

Foreign exchange (losses) gains are comprised primarily of losses and gains on foreign currency transactions primarily related to research and development expenses.

We incur certain expenses, primarily in Euros, and record these expenses in United States Dollars at the time the liability is incurred.

Changes in the applicable foreign currency rate between the date that an expense is recorded and the payment date is recorded as a foreign currency loss or gain.

Investment Income.

1 unchanged sentence

Non-cash interest expense for the sale of future royalties.

Non-cash interest expense for the sale of future royalties consists of the interest expense associated with the Royalty Pharma agreement.

Non-cash interest expense for the sale of future royalties consists of the non-cash interest expense associated with the Royalty Pharma agreement.

Results of Operations

Comparison of Three Months Ended September 30, 2021 versus September 30, 2020

Research and Development Expenses

Research and development expenses were $4.5 million and $4.6 million for the three months ended September 30, 2021 and 2020, respectively, a decrease of approximately $0.1 million.

The decrease in research and development expenses was primarily due to a decrease in non-cash stock-based compensation expenses.

Non-cash stock compensation expense included in research and development expenses was $0.5 million and $0.8 million for the three months ended September 30, 2021 and 2020, respectively .

General and Administrative Expenses

General and administrative expenses were $3.0 million and $3.5 million for the three months ended September 30, 2021 and 2020, respectively, a decrease of approximately $0.5 million.

The decrease in general and administrative expenses was primarily due to a decrease in non-cash stock-based compensation expenses and insurance costs.

Non-cash stock compensation expense included in general and administrative expenses was $0.6 million and $1.2 million for the three months ended September 30, 2021 and 2020, respectively .

Foreign Exchange Losses

Foreign exchange losses were $5 thousand and $27 thousand for the three months ended September 30, 2021 and 2020, respectively, an increase of $22 thousand.

The decrease in foreign exchange losses was primarily due to a lower level of clinical activities in 2021 denominated in Euros.

Investment Income

Investment income was $4 thousand and $5 thousand for the three months ended September 30, 2021 and 2020, respectively, a decrease of $1 thousand.

The decrease was primarily due to lower interest rates during 2021.

Non-cash interest expense for the sale of future royalties

Non-cash interest expense for the sale of future royalties was $1.7 million for the three months ended September 30, 2021 and zero for the prior year period.

The increase was primarily due to the sale of our royalty interest in seltorexant to Royalty Pharma and the effective interest associated with the agreement, see Note 6 for the sale of future royalties.

Comparison of Nine Months Ended September 30, 2021 versus September 30, 2020

Collaborative Revenue

Collaborative Revenue was zero and $41.2 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $41.2 million.

The decrease in collaborative revenue was the result of opting out of our co-development and license agreement with Janssen and recognizing the revenue during the nine months ended September 30, 2020 and no similar activity in the corresponding period in 2021.

Comparison of Three Months Ended March 31, 2022 versus March 31, 2021

Research and Development Expenses

Research and development expenses were $13.3 million and $18.5 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease of approximately $5.2 million.

The decrease in research and development expenses was primarily due to a decrease in non-cash stock-based compensation expenses and lower costs for the Phase 3 clinical trial of roluperidone as a result of the completion in May 2020 of the three-month core study portion of the trial.

Non-cash stock compensation expense included in research and development expenses was $1.8 million and $2.2 million for the nine months ended September 30, 2021 and 2020, respectively .

Research and development expenses were $5.0 million and $3.3 million for the three months ended March 31, 2022 and 2021, respectively, an increase of approximately $1.7 million.

The increase in research and development expenses was primarily due to higher consulting fees related to NDA support activities.

Non-cash stock compensation expense included in research and development expenses was $0.5 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively .

General and Administrative Expenses

General and administrative expenses were $10.7 million and $13.5 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease of approximately $2.8 million.

The decrease in general and administrative expenses was primarily due to a decrease in non-cash stock-based compensation expenses and severance benefits.

Non-cash stock compensation expense included in general and administrative expenses was $2.2 million and $5.6 million for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in stock compensation expense of $3.4 million was due primarily to certain stock option awards approved in June 2020 as well as additional stock compensation expense incurred under a severance agreement during 2020.

General and administrative expenses were $3.0 million and $4.2 million for the three months ended March 31, 2022 and 2021, respectively, a decrease of approximately $1.2 million.

The decrease in general and administrative expenses was primarily due to lower staffing related expenses, non-cash stock compensation expense, lower legal and insurance costs.

Non-cash stock compensation expense included in general and administrative expenses was $0.6 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively .

Foreign Exchange Losses

Foreign exchange losses were $29 thousand and $41 thousand for the nine months ended September 30, 2021 and 2020, respectively, an increase of $12 thousand.

The decrease in foreign exchange losses was primarily due to a lower level of clinical activities in 2021 denominated in Euros.

Foreign exchange losses were $4,000 and $5,000 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $1,000 primarily due to fewer negative currency movements.

Investment Income

Investment income was $13 thousand and $160 thousand for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $147 thousand.

The decrease was primarily due to lower average balances for cash equivalents and marketable securities during 2021.

Investment income was $7,000 and $4,000 for the three months ended March 31, 2022 and 2021, respectively, an increase of $3,000 primarily due to slightly higher interest rates.

Non-cash interest expense for the sale of future royalties

Non-cash interest expense for the sale of future royalties was $4.6 million for the nine months ended September 30, 2021 and zero for the prior year period.

Non-cash interest expense for the sale of future royalties was $1.8 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively, an increase of $0.5 million.

The increase was primarily due to the higher effective interest rate during 2022 and the increase in the carrying value of the liability related to the sale of future royalties for seltorexant to Royalty Pharma in accordance with ASC 470, Debt.

Liquidity and Capital Resources

Sources of Liquidity

As of September 30, 2021, we had an accumulated deficit of approximately $313.4 million.

As of March 31, 2022, we had an accumulated deficit of approximately $344.5 million.

We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our product candidates and to support our operations as a public company.

At September 30, 2021, we had approximately $65.7 million in cash, cash equivalents, and restricted cash.

At March 31, 2022, we had approximately $55.0 million in cash, cash equivalents, and restricted cash.

In January 2021 Royalty Pharma acquired our royalty interest in seltorexant for an upfront payment of $60 million and up to an additional $95 million in potential milestone payments.

1 unchanged sentence

Seltorexant is currently in Phase 3 development for the treatment of MDD with insomnia symptoms by Janssen.

We believe that our existing cash, cash equivalents, and restricted cash will be sufficient to meet our cash commitments for at least the next 12 months after the date that the interim condensed financial statements are issued.

The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain.

The assumptions upon which we have based our estimates are routinely evaluated and may be subject to change.

The actual amount of our expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of our research and development programs, the infrastructure to support a commercial enterprise, the cost of a commercial product launch and the level of financial resources available.

We have the ability to adjust our operating plan spending levels based on the timing of future clinical trials which will be predicated upon adequate funding to complete the trials.

We believe that our existing cash, cash equivalents and restricted cash will be sufficient to meet our cash commitments for at least the next 12 months after the date that the financial statements are issued.

Our material cash requirements primarily relate to expenditures for the continued development of roluperidone and NDA preparation activities.

Sources of Funds

3 unchanged sentences

The shares were sold at an average price of $3.7113 per share for aggregate net proceeds to us of approximately $12.1 million, after deducting sales commissions and offering costs payable by us.

During the three months ended March 31, 2022, no shares of our common stock were issued or sold under the Sales Agreement.

Seltorexant Royalties

1 unchanged sentence

During 2020, we exercised our right to opt out of a joint development agreement with Janssen for the future development of seltorexant.

As a result, we are entitled to collect royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no further financial obligations to Janssen.

On January 19, 2021, we entered into an agreement with Royalty Pharma under which Royalty Pharma has acquired our royalty interest in seltorexant for an upfront payment of $60 million and up to an additional $95 million in potential milestone payments, contingent upon the achievement of certain clinical, regulatory and commercial milestones for seltorexant by Janssen.

As a result, we were entitled to collect royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no further financial obligations to Janssen.

On January 19, 2021 we entered into an agreement under which Royalty Pharma acquired our royalty interest in seltorexant for an upfront payment of $60 million and up to an additional $95 million in potential milestone payments, contingent upon the achievement of certain clinical, regulatory and commercial milestones for seltorexant by Janssen.

Uses of Funds

To date, we have not generated any revenue from sales of products.

We have only generated collaborative revenue due to opting out of our license and co-development agreement with Janssen, and have only generated revenue from the one-time sale of our royalty interests in seltorexant to Royalty Pharma.

We do not know when, or if, we will generate any revenue from sales of our products, or from the potential future royalty streams associated with the sale of our royalty interests in seltorexant to Royalty Pharma.

We have only generated collaborative revenue due to opting out of our license and co-development agreement with Janssen.

Furthermore, the $60 million payment received from Royalty Pharma for the sale of our royalty interests in seltorexant has been included on our balance sheet under Liability related to the sale of future royalties We do not know when, or if, we will generate any revenue from sales of our products, or from the potential future non-cash royalty revenue associated with the sale of our royalty interests in seltorexant to Royalty Pharma.

We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our product candidates.

At the same time, we expect our expenses to increase in connection with our ongoing development activities,

particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates.

At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates.

We also expect to continue to incur costs associated with operating as a public company.

6 unchanged sentences

If we are unable to obtain additional financing, future operations would need to be scaled back or discontinued.

The timing of future capital requirements depends upon many factors including the size and timing of future clinical trials, the timing and scope of any strategic partnering activity and the progress of other research and development activities.

The tables below set forth our significant sources and uses of cash for the periods.

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in millions)

3 unchanged sentences

Financing activities

Net increase in cash

Net (decrease) increase in cash

Net Cash Used in Operating Activities

Net cash used in operating activities of approximately $19.8 million during the nine months ended September 30, 2021 was primarily due to our net loss of $28.6 million, a $0.1 million increase in capitalized software, and approximately a $0.1 million decrease in accrued expenses, partially offset by stock-based compensation expense of $4.0 million, non-cash interest expense for the sale of future royalties of $4.6 million, a $0.2 million decrease in prepaid expense, and a $0.2 million increase in accounts payable.

Net cash used in operating activities of approximately $26.7 million during the nine months ended September 30, 2020 was primarily due to our net income of $9.3 million, stock-based compensation expense of $7.7 million, and a $0.4 million increase in accrued expenses, partially offset by a decrease in deferred revenue of $41.2 million, a $1.7 decrease in accounts payable, and an increase prepaid expense of $1.2 million.

Net cash used in operating activities of approximately $5.8 million during the three months ended March 31, 2022 was primarily due our net loss of $9.8 million and a $0.3 million decrease in accounts payable, partially offset by non-cash interest expense for the sale of future royalties of $1.8 million, stock-based compensation expense of $1.1 million, a $0.7 million decrease in prepaid expense, and an increase in accrued expenses of $0.7 million.

Net cash used in operating activities of approximately $5.2 million during the three months ended March 31, 2021 was primarily due our net loss of $8.8 million, partially offset by stock-based compensation expense of $1.5 million, non-cash interest expense for the sale of future royalties of $1.3 million, a $0.5 million decrease in prepaid expense, a $0.1 million increase in accounts payable, and an increase in accrued expenses of approximately $0.2 million.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was zero during the nine months ended September 30, 2021.

Net cash provided by investing activities of approximately $24.5 million during the nine months ended September 30, 2020 was primarily due to the maturity and redemption of marketable securities of $28.4 million, partially offset by the purchase of marketable securities of $3.9 million.

Net cash provided by investing activities was zero during the three months ended March 31, 2022 and 2021.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $60 million during the nine months ended September 30, 2021 was due to the proceeds from the sale of future royalties of $60 million.

Net cash provided by financing activities of $13.3 million during the nine months ended September 30, 2020 was due to gross proceeds received from the ‘at the market’ stock offering of $12.6 million less costs of $0.4 million, and proceeds from the exercise of common stock options of $1.1 million.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.

Net cash provided by financing activities was zero during the three months ended March 31, 2022.

Net cash provided by financing activities of $60 million during the three months ended March 31, 2021 was due to the proceeds from the sale of future royalties of $60 million.

Critical Accounting Policies and Estimates

1 unchanged sentence

in-process research and development;

and income taxes.

We reviewed our policies and determined that those policies and the accounting policies and estimates relating to the liability related to the sale of future royalties were our most critical accounting policies for the nine months ended September 30, 2021.

Liability related to the sale of future royalties

The Company treats the sale of future royalties to Royalty Pharma as a debt financing, as the Company has significant continuing involvement in facilitating the transfer of royalties to Royalty Pharma and Royalty Pharma has recourse against the Company relating to the payments due from Janssen.

As a result, the Company recorded the upfront payment of $60 million from this transaction as a liability related to the sale of future royalties to be amortized to interest expense using the effective interest rate method over the life of the arrangement.

The liability related to sale of future royalties and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement.

The Company will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external sources.

To the extent the Company’s future estimates of royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than its previous estimates, the Company will prospectively recognize related non-cash interest expense.

For further discussion of the sale of future royalties, please refer to Note 6, Sale of Future Royalties.

income taxes;

and the liability related to the sale of future royalties.

We reviewed our policies and determined that those policies were our most critical accounting policies for the three months ended March 31, 2022.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board and are adopted by us as of the specified effective date.

Our significant accounting policies are described in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Form 10-Q.

Except as described in Note 2, we believe that the impact of other recently issued accounting pronouncements will not have a material impact on consolidated financial position, results of operations, and cash flows, or do not apply to our operations.

See Note 2 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Note 2 in our condensed consolidated financial statements appearing elsewhere in this Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.

We believe that the impact of recently issued, but not yet adopted, accounting pronouncements will not have a material impact on the condensed consolidated financial statements or do not apply to our operations.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis