What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-13 compared with 2020-08-10 · 197 added, 131 removed, 347 unchanged (49% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

Current assets:

11 unchanged sentences

Accrued expenses

Deferred revenue, current

Related party payable

Total current liabilities

Deferred revenue, net of current portion

Related party payable - noncurrent

1 unchanged sentence

Stockholders' equity:

Preferred stock, $0.001 par value, 10,000,000 shares authorized;

Series A convertible preferred stock, 10,000 shares designated, 5,506 and 7,762 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Preferred stock, $0.001 par value;

10,000,000 shares authorized;

Series A convertible preferred stock, 10,000 shares designated, 5,506 and 7,762 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Common stock, $0.001 par value;

125,000,000 shares authorized;

57,082,100 and 54,710,322 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

63,435,222 and 54,710,322 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in-capital

6 unchanged sentences

Condensed Consolidated Statements of Operations

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

License revenue

Operating expenses:

3 unchanged sentences

Loss from operations

Interest income

Other (expense) income, net

Net loss attributable to common stockholders

4 unchanged sentences

Condensed Consolidated Statements of Comprehensive Loss

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Other comprehensive income (loss):

4 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

Series A Convertible Preferred Stock

Preferred Stock

Comprehensive

11 unchanged sentences

Balance, June 30, 2020

Series A Convertible Preferred Stock

Stock-based compensation expense

Proceeds from August 2020 Offering, net of underwriting costs and commissions

Issuance of common stock from employee stock purchase plan

Issuance of common stock from exercise of stock options

Balance, September 30, 2020

Preferred Stock

Comprehensive

9 unchanged sentences

Balance, June 30, 2019

Stock-based compensation expense

Issuance of common stock from employee stock purchase plan

Conversion of common stock to Series A convertible preferred stock

Balance, September 30, 2019

See accompanying notes to these unaudited condensed consolidated financial statements

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

10 unchanged sentences

Accrued expenses

Deferred revenue

Related party payable

7 unchanged sentences

Cash flows from financing activities:

Proceeds from August 2020 Offering, net of offering expenses

Proceeds from February 2019 Offering, net of offering expenses

3 unchanged sentences

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents, at beginning of period

3 unchanged sentences

Purchase of property and equipment in accounts payable

Offering costs in accrued expenses and accounts payable

See accompanying notes to these unaudited condensed consolidated financial statements

8 unchanged sentences

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and ability to secure additional capital to fund operations.

Historically, the Company’s major sources of cash have comprised of proceeds from various public and private offerings of its capital stock and interest income.

As of June 30, 2020, the Company had approximately $41.3 million in cash and cash equivalents.

The Company has not generated any revenue since inception.

As a result, the Company has incurred recurring losses and requires significant cash resources to execute its business plans.

The Company has an accumulated deficit of $255.7 million as of June 30, 2020 and had cash outflows from operating activities of $35.6 million for the six months ended June 30, 2020 .

Historically, the Company’s major sources of cash have been comprised of proceeds from various public and private offerings of its capital stock and interest income.

As of September 30, 2020, the Company had approximately $86.9 million in cash and cash equivalents.

Since inception, the Company has generated $6.9 million in revenue as part of the Company’s license and collaboration agreement (the “Angelini License Agreement”) with Angelini Pharma Rare Diseases AG (“Angelini”).

The Company has incurred recurring losses, has experienced negative operating cash flows and requires significant cash resources to execute its business plans.

The Company has an accumulated deficit of $272.2 million as of September 30, 2020 , working capital of $72.4 million and had cash outflows from operating activities of $37.1 million for the nine months ended September 30, 2020 .

The Company has incurred operating losses since inception and expects to continue to incur net losses for at least the next several years and is highly dependent on its ability to find additional sources of funding through either equity offerings, debt financings, collaborations, strategic alliances, licensing agreements or a combination of any such transactions.

Management has identified certain conditions or events, which, considered in the aggregate, could raise substantial doubt about the Company’s ability to continue as a going concern including the risk that the Company will be unable to raise adequate additional capital to fund the Company’s operations through at least the next 12 months from the date of filing of the Company’s Quarterly Report on Form 10-Q.

The Company’s management believes it has a number of mitigating actions it can pursue, including (i) implementing cost-cutting measures, (ii) managing the Company’s capital expenditures and (iii) additional cash received from collaboration and license agreements (See Note 13) in order to generate additional liquidity.

The Company’s management believes it can pursue implementing various cost-cutting measures in order to manage liquidity.

The Company’s management believes that these actions alleviate the substantial doubt referred to above.

3 unchanged sentences

We have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business.

The extent to which the ongoing COVID-19 pandemic impacts our business, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predi cted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease.

The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

The extent to which the ongoing COVID-19 pandemic impacts our business, our clinical development and regulatory efforts, our corporate development objectives and the value of a nd market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and busine ss closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease.

The global economic slowdown, the overall disruption of global healthcare systems and the other risks and un certainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with:

1 unchanged sentence

delays or problems in the supply of our products, loss of single source suppliers or failure to comply with manufacturing regulations;

identifying, acquiring or in-licensing additional products or product candidates;

identifying, acquiring or in-licensing additional products or product candi dates;

pharmaceutical product development and the inherent uncertainty of clinical success;

and the challenges o f protecting and enhancing our intellectual property rights;

and the challenges of protecting and enhancing our intellectual property rights;

complying with applicable regulatory requirements.

3 unchanged sentences

Securities and Exchange Commission (“SEC”) on March 11, 2020.

There have been no material changes to the significant accounting policies during the period ended June 30, 2020, except for items mentioned below.

There have been no material changes to the significant accounting policies during the period ended September 30, 2020, except for items mentioned below.

(A) Unaudited Interim Condensed Consolidated Financial Statements

The interim condensed consolidated balance sheet at June 30, 2020, the condensed consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity for the three and six months ended June 30, 2020 and 2019 are unaudited.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

The interim condensed consolidated balance sheet at September 30, 2020, the condensed consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 are unaudited.

The accompanying unaudited

condensed consolidated f inancial s tatements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) and following the requirements of the SEC for interim reporting.

As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP are condensed or omitted.

As permitted under those rules, certain footnotes or other financial information that ar e normally required by GAAP are condensed or omitted.

These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information.

The results of operations for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period.

The balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date.

The results of operations for the three and nine months ended September 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 20 20 or for any other future annual or interim period.

The balance sheet as of December 31, 2019 included herein was derived from the audited financial statement s as of that date.

These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

17 unchanged sentences

Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

The carrying amounts reported in the balance sheets for cash and cash e quivalents, related party receivable, other current assets, accounts payable, accrued expenses , and current related party payable approximate their fair value based on the short-term maturity of these instruments.

( E) Recent Accounting Pronouncements

The carrying amounts reported in the balance sheets for cash and cash equivalents, related party receivable, other current assets, accounts payable, accrued expenses, and current related party payable approximate their fair value based on the short-term maturity of these instruments.

(E) Revenue Recognition

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

In applying ASC 606, the Company performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the promises and performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) it satisfies the performance obligations.

The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services we transfer to the customer.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Prior to recognizing revenue, the Company makes estimates of the transaction price, including variable consideration that is subject to a constraint.

Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on its relative standalone selling price.

The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin.

Revenue is recognized by measuring the progress toward complete satisfaction of the performance obligations using an input measure.

License Revenue:

Non-refundable upfront fees that are not contingent on any future performance and require no consequential continuing involvement by the Company, are recognized as revenue when the license term commences and the licensed data, technology or product is delivered.

The Company defers recognition of upfront license fees if the performance obligations are not satisfied.

During the three months ended September 30, 2020, the Company entered into a sublicense agreement with a certain sublicensee in territories outside of the United States.

This sublicensing agreement grants certain intellectual property rights and set forth various respective obligations including completion of certain ongoing trials, transfer of a specified amount of compound and related information, transfer of specified components of the technology transfer and a commitment to fund 35% of the cost for certain future studies as needed (see note 10).

( F) Recent Accounting Pronouncements

Recent accounting standards which have been adopted

7 unchanged sentences

ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019.

As of June 30, 2020, the Company did not hold any debt securities with credit losses, nor does it have any trade receivables.

As of September 30, 2020, the Company did not hold any debt securities with credit losses, nor does it have any trade receivables.

The adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s financial statements.

12 unchanged sentences

The amended guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

The adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s financial statements.

The adoption of this standard effective January 1, 2020 impacted the Company’s recognition of revenue related to the Angelini license agreement (see note 10).

NOTE 3 – CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

All short-term investments are classified as available-for-sale.

The following tables summarize the fair value of cash, cash equivalents and short-term investments, as well as gross unrealized holding gains and losses as of June 30, 2020 and December 31, 2019:

June 30, 2020

The following tables summarize the fair value of cash, cash equivalents and short-term investments, as well as gross unrealized holding gains and losses as of September 30, 2020 and December 31, 2019:

September 30, 2020

Gross unrealized

4 unchanged sentences

Total cash and cash equivalents

(a) As of June 30, 2020, the Company's Level 1 assets consisted of money market funds totaling $41.1 million.

The Company had no level 2 or level 3 assets or liabilities as of June 30, 2020.

(a) As of September 30, 2020, the Company's Level 1 assets consisted of money market funds totaling $83.6 million.

The Company had no level 2 or level 3 assets or liabilities as of September 30, 2020.

December 31, 2019

10 unchanged sentences

The Company had no level 2 or level 3 assets or liabilities as of December 31, 2019.

As of June 30, 2020, the aggregate fair value of securities that were in an unrealized gain position for less than 12 months was zero.

As of September 30, 2020, the aggregate fair value of securities that were in an unrealized gain position for less than 12 months was zero.

As of December 31, 2019, the aggregate fair value of securities that were in an unrealized gain position for less than 12 months was $34.8 million.

The Company did not hold any securities in an unrealized gain or loss position for more than 12 months as of June 30, 2020.

There were no realized gains or losses on available-for-sale securities during the three and six months ended June 30, 2020 and the year ended December 31, 2019.

The Company did not hold any securities in an unrealized gain or loss position for more than 12 months as of September 30, 2020.

There were no realized gains or losses on available-for-sale securities during the three and nine months ended September 30, 2020 and the year ended December 31, 2019.

NOTE 4 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

Property and equipment is summarized as follows:

September 30,

Furniture and equipment

1 unchanged sentence

Total property and equipment, net

Depreciation expense was $27,000 and $19,000 for the six months ended June 30, 2020 and 2019, respectively.

Depreciation expense was $15,000 and $9,000 for the three months ended June 30, 2020 and 2019, respectively.

Intangible assets, net of accumulated amortization was $376,000 and $467,000 as of June 30, 2020 and December 31, 2019, respectively, and are included in other assets.

Amortization expense was $118,000 and $127,000 for the six months ended June 30, 2020 and 2019, respectively.

Amortization expense was $63,000 and $60,000 for the three months ended June 30, 2020 and 2019, respectively.

Depreciation expense was $42,000 and $28,000 for the nine months ended September 30, 2020 and 2019, respectively.

Depreciation expense was $15,000 and $10,000 for the three months ended September 30, 2020 and 2019, respectively.

Intangible assets, net of accumulated amortization was $361,000 and $467,000 as of September 30, 2020 and December 31, 2019, respectively, and are included in other assets.

Amortization expense was $182,000 and $173,000 for the nine months ended September 30, 2020 and 2019, respectively.

Amortization expense was $64,000 and $46,000 for the three months ended September 30, 2020 and 2019, respectively.

NOTE 5 – ACCRUED EXPENSES

Accrued expenses consist of the following:

September 30,

Clinical trials accrual

13 unchanged sentences

In 2019, the Company sold 6,893,888 shares of its common stock under the ATM agreement for net proceeds of $22.3 million after deducting sales agent commissions and other offering expenses payable by the Company.

The Company did not sell any shares of its common stock under the ATM agreement during the six months ended June 30, 2020.

There were 5,506 and 7,762 shares of Series A Preferred Stock outstanding as of June 30, 2020 and December 31, 2019, respectively.

The Company did not sell any shares of its common stock under the ATM agreement during the nine months ended September 30, 2020.

There were 5,506 and 7,762 shares of Series A Preferred Stock outstanding as of September 30, 2020 and December 31, 2019, respectively.

Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock at any time at the holder’s option.

2 unchanged sentences

In the event of a liquidation, dissolution, or winding up of the Company, holders of Series A Preferred Stock will receive a payment equal to $0.001 per share of Series A Preferred Stock before any proceeds are distributed to the holders of common stock.

In August 2020, the Company sold 6,250,000 shares of its common stock at a public offering price of $8.00 per share, for net proceeds of $46.7 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company, (the “August 2020 Offering”).

In May 2020, entities affiliated with Biotechnology Value Fund, L.P.

2 unchanged sentences

In September 2019, the Company entered into an exchange agreement with entities affiliated with Biotechnology Value Fund, L.P.

(the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,262,000 shares of the Company’s common stock owned by the Exchanging Stockholders for an aggregate of 1,262 shares of the Company’s Series A Preferred Stock

(the “Exchang e Shares”).

The Exchange Shares were issued without registration under the Securities Act of 1933, as amended, in reliance on the exemption from registration contained in Section 3(a)(9) of the Securities Act.

1 unchanged sentence

No dividends on the common stock shall be declared and paid unless dividends on the Preferred Stock have been declared and paid.

Through June 30, 2020 , the Company has not declared any dividends.

Through September 30, 2020 , the Company has not declared any dividends.

NOTE 7 – STOCK-BASED COMPENSATION

1 unchanged sentence

The Company's Board of Directors adopted and the Company's stockholders approved the 2017 equity incentive plan (“2017 Plan”), which became effective immediately on May 4, 2017.

The initial reserve of shares of common stock under the 2017 Plan was 3,052,059 shares.

The initi al reserve of shares of common stock under the 2017 Plan was 3,052,059 shares.

The 2017 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of stock-based awards.

4 unchanged sentences

On January 1, 2020 and January 1, 2019, respectively, an additional 2,735,516 and 1,232,705 shares were reserved for issuance under the 2017 Plan.

As of June 30, 2020, there were 4,043,221 shares of the Company’s common stock reserved and available for issuance under the 2017 Plan.

As of September 30, 2020, there were 3,649,226 shares of the Company’s common stock reserved and available for issuance under the 2017 Plan.

The Company's Board of Directors adopted, and the Company's stockholders approved the 2017 employee stock purchase plan (the “2017 ESPP”), which became effective immediately prior to the execution of the underwriting agreement related to the Company’s initial public offering on May 4, 2017.

The initial reserve of shares of common stock that may be issued under the 2017 ESPP was 279,069 shares.

On March 20, 2017, the Company’s Compensation Committee approved an offering period under the 2017 ESPP, which began on October 20, 2017.

On March 20, 2017, the

Company’s Compensation Committee approved an offering period under the 2017 ESPP, which bega n on October 20, 2017.

The ESPP allows employees to purchase common stock of the Company at a 15% discount to the market price on designated purchase dates.

During the three months ended June 30, 2020 and 2019, no shares were purchased under the ESPP and the Company recorded expense of $51,841 and $35,203, respectively.

During the six months ended June 30, 2020 and 2019, 43,743 and 45,126 shares were purchased under the ESPP and the Company recorded expense of $71,601 and $64,926, respectively The number of shares of common stock reserved for issuance under the 2017 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2018 and continuing through and including January 1, 2027, by the lesser of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (ii) 550,000 shares or (iii) such lesser number of shares determined by our Board.

During the three months ended September 30, 2020 and 2019 , 61,721 and 35,416 shares were purchased under the ESPP and the Company recorded expense of $ 36,111 and $ 34,865 , respectively.

During the nine months ended September 30, 2020 and 2019, 105,464 and 80,542 shares were purchased under the ESPP and the Company recorded expense of $ 107,712 and $ 99,791 , respectively The number of shares of common stock reserved for issuance under the 2017 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2018 and continuing through and including January 1, 2027, by the lesser of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (ii) 550,000 shares or (iii) such lesser number of shares determined by our Board.

On January 1, 20 19 , an additional 246,541 shares were reserved for issuance under the 2017 ESPP .

The Board acted prior to January 1, 2020 to provide that there be no increase in the number of shares reserved for issuance under the 2017 ESPP.

As of June 30, 2020, there were 615,273 shares of the Company’s common stock reserved for issuance under the 2017 ESPP.

As of September 30, 2020 , there were 553,552 shares of the Company’s common stock reserved for issuance under the 2017 ESPP.

Unless specified otherwise in an individual option agreement, stock options granted under the 2014 Plan and 2017 Plan generally have a ten-year term and a four-year graded vesting period.

5 unchanged sentences

Performance-based option awards generally have similar terms, with vesting commencing on the date the performance condition is achieved and expire in accordance with the specific terms of the agreement.

At June 30, 2020, there were 982,185 performance-based options outstanding and unvested that include options to be granted upon the achievement of certain research and development milestones.

The fair value of options granted during the six months ended June 30, 2020 and 2019 was estimated using the Black-Scholes option valuation model.

Th e inputs for the Black-Scholes option valuation model require management’s significant assumptions and are detailed in the table below.

At September 30, 2020, there were 953,310 performance-based options outstanding and unvested that include options to be granted upon the achievement of certain research and development milestones.

The fair value of options granted during the nine months ended September 30, 2020 and 2019 was estimated using the Black-Scholes option valuation model.

The inputs for the Black-Scholes option valuation model require management’s significant assumptions and are detailed in the table below.

The risk-free interest rates were based on the rate for U.S.

Treasury securities at the date of grant with maturity date s approximately equal to the expected life at the grant date.

Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date.

The expected life was based on the simplified method in accordance with the SEC Staff Accounting Bulletin No.

The expected volatility was estimated based on historical volatility info rmation of peer companies that are publicly available.

The expected volatility was estimated based on historical volatility information of peer companies that are publicly available.

All assumptions used to calculate the grant date fair value of nonemployee options are generally consistent with the assumptions used for options granted to employees.

In the event the Company terminates any of its consulting agreements, the unvested options underlying the agreements would also be cancelled.

The Company granted 10,000 and 175,000 stock options to nonemployee consultants for services rendered during the six months ended June 30, 2020 and 2019, respectively.

There were 144,375 and 158,939 unvested nonemployee options outstanding as of June 30, 2020, and 2019, respectively.

Total expense recognized related to the nonemployee stock options for the three months ended June 30, 2020 and 2019 was $35,000 and $133,000, respectively.

Total expense recognized related to the nonemployee stock options for the six months ended June 30, 2020 was $71,000.

During the six months ended June 30, 2019, the Company recognized a credit of $18,348 related to the nonemployee stock options including the modification of certain options in connection with the separation and consulting agreement with Dr.

The Company granted 10,000 and 175,000 stock options to nonemployee consultants for services rendered during the nine months ended September 30, 2020 and 2019, respectively.

There were 139,688 and 152,073 unvested nonemployee options outstanding as of September 30, 2020, and 2019, respectively.

Total expense recognized related to the nonemployee stock options for the three months ended September 30, 2020 and 2019 was $134,004 and $35,007, respectively.

Total expense recognized related to the nonemployee stock options for the nine months ended September 30, 2020 was $205,643.

During the nine months ended September 30, 2019, the Company recognized a credit of $17,000 related to the nonemployee stock options including the modification of certain options in connection with the separation and consulting agreement with Dr.

During (see Note 11), respectively.

Total unrecognized compensation expenses related to the nonemployee stock options was $257,000 as of June 30, 2020.

During the six months ended June 30, 2020 and 2019, the Company recognized no expense for nonemployee performance-based option awards.

The Company granted 1,116,860 and 1,690,715 stock options to employees during the six months ended June 30, 2020 and 2019 respectively.

There were 4,240,051 and 2,855,165 unvested employee options outstanding as of June 30, 2020, and 2019, respectively.

Total expense recognized related to the employee stock options for the three months ended June 30, 2020 and 2019 was $1.5 million and $1.2 million, respectively.

Total expense recognized related to the employee stock options for the six months ended June 30, 2020 and 2019 was $2.8 million and $2.8 million, respectively.

Total unrecognized compensation expense related to employee stock options was $8.9 million as of June 30, 2020.

During the six months ended June 30, 2020 and 2019, the Company recognized $277 ,000 and 9,000, respectively, in expenses for employee performance-based option awards.

Total unrecognized compensation expenses related to the nonemployee stock options was $238,670 as of September 30, 2020.

During the nine months ended September 30, 2020 and 2019, the Company recognized $98,726 and zero expense for nonemployee performance-based option awards.

The Company granted 1,636,660 and 1,781,115 stock options to employees during the nine months ended September 30, 2020 and 2019 respectively.

There were 4,418,152 and 2,615,208 unvested employee options outstanding as of September 30, 2020, and 2019, respectively.

Total expense recognized related to the employee stock options for the three months ended September 30, 2020 and 2019 was $2.4 million and $1.1 million, respectively.

Total expense recognized related to the employee stock options for the nine months ended September 30, 2020 and 2019 was $5.2 million and $4.0 million, respectively.

Total unrecognized compensation expense related to employee stock options was $9.6 million as of September 30, 2020.

During the nine months ended September 30, 2020 and 2019, the Company recognized $1.6 million and $9,000, respectively, in expenses for employee performance-based option awards.

The Company’s stock-based compensation expense was recognized in operating expense as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Research and development

General and administrative

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Stock options

Employee Stock Purchase Plan

The fair value of employee options granted during the three and six months ended June 30, 2020 and 2019 was estimated by utilizing the following assumptions:

Three Months Ended June 30,

Six Months Ended June 30,

The fair value of employee options granted during the three and nine months ended September 30, 2020 and 2019 was estimated by utilizing the following assumptions:

Three Months Ended September 30,

Nine Months Ended September 30,

Expected term in years

2 unchanged sentences

Fair value of option on grant date

The fair value of nonemployee options granted during the three and six months ended June 30, 2020 and 2019 was estimated by utilizing the following assumptions:

Three Months Ended June 30,

Six Months Ended June 30,

The fair value of nonemployee options granted during the three and nine months ended September 30, 2020 and 2019 was estimated by utilizing the following assumptions:

Three Months Ended September 30,

Nine Months Ended September 30,

Expected term in years

6 unchanged sentences

Forfeited or expired

Options outstanding June 30, 2020

Vested and exercisable at June 30, 2020

At June 30, 2020 there was approximately $9.2 million of unamortized share–based compensation expense related to employee and nonemployee grants, which is expected to be recognized over a remaining average vesting period of 2.27 years.

Options outstanding September 30, 2020

Vested and exercisable at September 30, 2020

At September 30, 2020 there was approximately $9.9 million of unamortized share–based compensation expense related to employee and nonemployee grants, which is expected to be recognized over a remaining average vesting period of 2.30 years.

NOTE 8 – INCOME TAXES

1 unchanged sentence

In addition, the net deferred tax assets generated from the net operating losses have been fully reserved as the Company believes it is not more likely than not that the benefit will be realized.

During the six months ended June 30, 2020, the Company recorded a $500,000 refundable tax credit towards future New York State tax expense as a reduction to operating expenses.

During the nine months ended September 30, 2020, the Company recorded a $500,000 refundable tax credit towards future New York State tax expense as a reduction to operating expenses.

The credit was granted under the NYS Life Sciences Research and Development Tax Credit Program.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

NOTE 9 – COMMIT MENTS AND CONTINGENCIES

License Agreements

6 unchanged sentences

In December 2016, the Company entered into a license agreement with Northwestern University (“Northwestern”), pursuant to which Northwestern granted the Company an exclusive, worldwide license to patent rights in certain inventions (the “Northwestern Patent Rights”) which relate to a specific compound and related methods of use for such compound, along with certain Know-How related to the practice of the inventions claimed in the Northwestern Patents.

Unde r the Northwestern agreement, the Company was granted exclusive rights to research, develop, manufacture and commercialize products utilizing the Northwestern Patent Rights for all uses.

The Company has agreed that it will not use the Northwestern Patent Rights to develop any products for the treatme nt of cancer, but Northwestern may not grant rights in the technology to others for us e in cancer.

The Company also has an option, exercisable during the term of the agreement to an exclusive license under certain intellectual property rights covering nove l compounds with the same or similar mechanism of action as the primary compound that is the subject of the license agreement.

Northwestern has retained the right, on behalf of itself and other non-profit institutions, to use the Northwestern Patent Right s and practice the inventions claimed therein for educational and research purposes and to publish information about the inventions covered by the Northwestern Patent Rights.

Under the Northwestern agreement, the Company was granted exclusive rights to research, develop, manufacture and commercialize products utilizing the Northwestern Patent Rights for all uses.

The Company has agreed that it will not use the Northwestern Patent Rights to develop any products for the treatment of cancer, but Northwestern may not grant rights in the technology to others for use in cancer.

The Company also has an option, exercisable during the term of the agreement to an exclusive license under certain intellectual property rights covering novel compounds with the same or similar mechanism of action as the primary compound that is the subject of the license agreement.

Northwestern has retained the right, on behalf of itself and other non-profit institutions, to use the Northwestern Patent Rights and practice the inventions claimed therein for educational and research purposes and to publish information about the inventions covered by the Northwestern Patent Rights.

Upon entry into the Northwestern agreement, the Company paid an upfront non-creditable one-time license issuance fee of $75,000, and is required to pay an annual license maintenance fee of $20,000, which will be creditable against any royalties payable to Northwestern following first commercial sale of licensed products under the agreement.

7 unchanged sentences

Northwestern may terminate the agreement for the Company’s uncured material breach or insolvency.

As of June 30, 2020, none of these contingent payments were considered probable.

As of September 30, 2020, none of these contingent payments were considered probable.

Contingencies

8 unchanged sentences

On June 25, 2018, Catalyst sent a letter to Northwestern and the Company alleging, among other things, that Northwestern breached the Catalyst License by licensing the Patent Application to the Company.

Catalyst’s letter also asserted that the Company had breached its obligations under the CDA by allegedly failing to disclose that the Company had a license to the Patent Application, and that a further breach would occur if the Company makes any use of information obtained under the CDA in connection with its development program arising from the rights granted under the license agreement.

Catalyst has asserted that the combined conduct of Northwestern and the Company gives rise to various claims, including breach of contract, fraud, and tortious interference.

Catalyst’s letter also asserted that the Company had breached its obligations under the CDA by allegedly failing to disclose that the

Company had a license to the Patent Application, and that a further breach would occur if the Company makes any use of information obtained under the CDA in co nnection with its development program arising from the rights granted under the l icense a greement.

Catalyst has asserted that the combined conduct of Northwestern and the Company gives rise to various claims, including breach of contract, fraud, and torti ous interference.

The Company believes that Catalyst’s claims are without merit and responded by letter dated June 28, 2018, which denies any and all liability to Catalyst, and further denies that Catalyst has been damaged in any way.

On May 20, 2019, the Company entered into a Settlement Agreement with Catalyst, pursuant to which Catalyst released the Company from any and all claims, known or unknown, arising from or related to the dispute between Catalyst and Northwestern, the License Agreement, and/or the claims that

Catalyst asserted against the Company in the June 25, 2018 letter.

Under the settlement , the Company retains all rights and privileges previously granted to the Company under the Northwestern Licensing Agreement.

NOTE 10 – COLLABORATION AGREEMENT

NOTE 10 – COLLABORATION AGREEMENTS

Angelini Collaboration

On July 9, 2020, the Company entered into the Angelini License Agreement with Angelini, pursuant to which the Company granted to Angelini exclusive rights to develop and commercialize OV101, a selective agonist of the GABA A receptor, for the treatment of Angelman syndrome in the European Economic Area as well as Switzerland, the United Kingdom, Russia and Turkey (the “European Territory”).

The licenses granted to Angelini include sublicenses under the Lundbeck Agreement, as well as licenses under the Company’s patents and know-how covering OV101.

Angelini will be responsible for conducting any clinical trials necessary to obtain regulatory approval for OV101 for Angelman syndrome in the European Territory, and the Company will be responsible for bearing a portion of the costs for such trials.

The Company will also be responsible, at its expense, for the completion of certain ongoing clinical trials for OV101, to the extent applicable to obtaining regulatory approval for OV101 in the European Territory.

Angelini has the exclusive right, at its election, to develop and commercialize OV101 for the treatment of Fragile X Syndrome in the European Territory.

The parties may also mutually agree to pursue additional indications for OV101 in the European Territory, and in such case, Angelini would have the exclusive rights to commercialize in such additional indications.

Angelini is required to use commercially reasonable efforts to conduct development activities for OV101, and following regulatory approval, to commercialize OV101 in each approved indication.

In conjunction with the entry into the Angelini License Agreement, the parties entered into a separate supply agreement, pursuant to which the Company will be responsible for supply of OV101 to Angelini for development and commercialization in the European Territory, through its existing supply relationship with Lundbeck.

The Angelini License Agreement also provides for a transfer, at Angelini’s expense, of t he relevant manufacturing technology from the Company and Lundbeck to Angelini, in order to enable Angelini to assume responsibility for its own manufacture and supply of OV101 in the future.

Under the Angelini License Agreement, Angelini made an upfront payment to the Company of $20.0 million during the three months ended September 30, 2020.

In addition, Angelini will be required to make milestone payments to the Company upon the completion of the specified components of the technology transfer, transfer of a specified amount of compound and related information, and achievement of specified regulatory milestones for OV101 in Angelman syndrome of up to $60.0 million in the aggregate, as well as up to $162.5 million in sales milestone payments for achievement of specified levels of net sales in the European Territory.

In addition, Angelini will be required to pay tiered royalties on net sales by Angelini, its affiliates or sublicensees at double-digit percentages above the teens, subject to certain standard reductions and offsets.

Royalties will be payable on a product-by-product and country-by-country basis until the latest of the expiration of the licensed patents covering such product in such country, the expiration of market exclusivity for such product in such country, and fifteen years from first commercial sale of such product in such country.

Either party may terminate the Angelini License Agreement for an uncured material breach of the other party or in the case of insolvency.

The Company may terminate the Angelini License Agreement if Angelini challenges any of the licensed patents.

Angelini may terminate the Angelini License Agreement for convenience on specified notice periods, which are determined based upon whether the product has been commercially launched in the European Territory.

The Company evaluated the Angelini License Agreement to determine whether it is a collaborative arrangement for purposes of ASC 808.

The Company concluded that because Angelini is not the ultimate decision maker or the legal owner of the license, Angelini is not considered an active participant and therefore the Angelini License Agreement is outside of the scope of ASC 808.

The Company concluded that Angelini is a customer with regard to the combined license and research & development activities and as such the Angelini License Agreement should be evaluated under ASC 606.

The Company identified the following material promises under the Angelini License Agreement:

(1) licensing of intellectual property with respect to OV101 (2) completion of certain ongoing trials (3) transfer of a specified amount of compound and related information (4) potential for funding 35% of the cost for Angelini future trials limited to $7.0 million (5) completion of the manufacturing process technology transfer.

The Company determined that the $7.0 million represents a potential payment to a customer and should be deferred.

The transfer of compound and related information is considered a contingent milestone payment that will be recognized upon acceptance by Angelini of the milestone.

The Company further determined that the license and the completion of ongoing trials are distinct from each other, as each has value without the other.

As such, for the purposes of ASC 606, the Company determined that these two material promises, represent distinct performance obligations.

The Company determined the transaction price is equal to the up-front fee of $20.0 million.

The transaction price was allocated based on the standalone selling price of the license and the ongoing trials.

Upon the transfer of the specified amount of compound and related information and acceptance by Angelini , Angelini will be required to make a payment towards the $60.0 million aggregate tech transfer and regulatory milestone payments.

This fulfillment is out of the Company's control, is subject to reversal and was not probable as of September 30, 2020 therefore this variable consideration is constrained and not part of the upfront transaction price.

At this time, the Company cannot estimate if or when this milestone-related performance obligations might be achieved.

Angelini will be required to make another payment towards the $60.0 million aggregate tech transfer and regulatory milestone payments upon the successful completion of the manufacturing process technology transfer.

The Company earning this is fully dependent on performance and cooperation of Angelini and Lundbeck in implementing the Technology Transfer.

At this time, the Company cannot estimate if or when this milestone-related performance obligation might be achieved.

During the three and nine months ended September 30, 2020, the Company recognized $6.1 million of license revenue and $0.8 million relating to the progress of the ongoing trials.

The portion of the upfront payment allocated to License Revenue was recognized in full as it was non-refundable and not contingent on any future performance and require no consequential continuing involvement by the Company.

The Company did not have any such revenue during the three and nine months ended September 30, 2019.

In addition, the Company recorded deferred revenue in the amount of approximately $13.1 million as of September 30, 2020 which will be recognized over the term of the ongoing trials based on the portion of total estimated expenses incurred.

The milestone payments in the Angelini License Agreement are considered contingent variable consideration which are not accounted for until the contingency is met.

There were no milestones met during the quarter ended September 30, 2020 and such there was no revenue recognized related to any milestones.

Takeda Collaboration

On January 6, 2017, the Company entered into a license and collaboration with Takeda to jointly develop and commercialize the compound TAK-935, which the Company has licensed from Takeda and now refers to as OV935 (soticlestat), in certain territories.

On January 6, 2017, the Company entered into a license and collaboration with Takeda Pharmaceutical Company Limited (“Takeda”), to jointly develop and commercialize the compound TAK-935, which the Company has licensed from Takeda and now refers to as OV935 (soticlestat), in certain territories.

Under the Takeda collaboration, the Company is obligated to pay Takeda future payments if and when certain milestones are achieved.

2 unchanged sentences

In the event a payment settled in shares of the Company’s common stock would cause Takeda to own over 19.99% of the Company’s outstanding capital stock or certain other events occur, such payment must be paid in cash.

None of these potential milestone payments mentioned above are deemed probable at June 30, 2020.

During the six months ended June 30, 2020, the Company recognized a credit in research and development expenses of $1.1 million representing costs to be reimbursed to the Company from Takeda .

During the six months ended June 30, 2019, the Company recognized a credit of $ 2.9 million in research and development expenses representing costs to be reimbursed to the Company from Takeda.

During the three months ended June 30, 2020, the Company recognized a credit of $0.8 million in research and development expenses and expenses of $0.2 million in general and administrative representing costs reimbursable to the Company from Takeda.

During the three months ended June 30, 2019, the Company recognized a credit of $1.6 million research and development expenses representing costs reimbursed to the Company from Takeda.

None of these potential milestone payments mentioned above are deemed probable at September 30, 2020.

During the nine months ended September 30, 2020, the Company recognized a credit in research and development expenses of $1.3 million and expenses of $0.3 million in general and administrative representing costs to be reimbursed to the Company from Takeda .

During the nine months ended September 30, 2019, the Company recognized a credit of $ 3.6 million in research and development expenses representing costs to be reimbursed to the Company from Takeda.

During the three months ended September 30, 2020, the Company recognized a credit of $0.2 million in research and development expenses and expenses of $0.1 million in general and administrative representing costs reimbursed to the Company from Takeda.

During the three months ended September 30, 2019, the Company recognized a credit of $0.7 million in research and development expenses representing costs reimbursed to the Company from Takeda.

The Takeda collaboration will expire upon the cessation of commercialization of the products by both the Company and Takeda.

10 unchanged sentences

During agreed to non-solicit and non-compete covenants through such time as he remains a consultant to the Company, as well as a general release of claims in connection therewith.

During agreed to a three-year consulting arrangement, pursuant to which he will be paid, amongst other specific milestone and meeting related fees, $150,000 per year for his role as the Chairman of the Company’s Scientific Advisory Board and $150,000 per year for other advisory and consulting services.

During was granted options to acquire 100,000 shares of common stock at an exercise price of $1.76 per share, the fair market value on April 1, 2019, which options shall vest in full upon completion of a specific clinical milestone, subject to Dr.

Board and $150,000 per year for other advisory and cons ulting services.

During’s continued service through such vesting date.

3 unchanged sentences

During was granted options to acquire 75,000 shares of common stock at an exercise price equal to $1.76 per share, the fair market value on April 1, 2019.

During or the Company may terminate the consulting arrangements pursuant to the Consulting Agreement in accordance with its

terms, at any time and for any reason, upon thirty (30) days written notice to the other party.

During or the Company may terminate the consulting arrangements pursuant to the Cons ulting Agreement in accordance with its terms, at any time and for any reason, upon thirty (30) days written notice to the other party.

Upon such termination, the Company will have no further obligations to Dr.

7 unchanged sentences

elected to convert an aggregate of 2,256 shares of Series A Preferred Stock owned by such holders into an aggregate of 2,256,000 shares of the Company’s common stock.

In August 2020, the Company issued and sold an aggregate of 1,250,000 shares of common stock to entities affiliated with Biotechnology Value Fund, L.P., an existing stockholder for aggregate gross proceeds of $10.0 million.

NOTE 12 – NET LOSS PER SHARE

5 unchanged sentences

The following potentially dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as they would be anti-dilutive:

September 30,

Stock options to purchase common stock

Series A convertible preferred stock

NOTE 13 – SUBSEQUENT EVENTS

On July 9, 2020, the Company entered into a collaboration and license agreement (the “Angelini License Agreement”) with Angelini Pharma Rare Diseases AG (“Angelini”), pursuant to which the Company granted to Angelini exclusive rights to develop and commercialize OV101, a selective agonist of the GABA A receptor, for the treatment of Angelman syndrome in the European Economic Area as well as Switzerland, the United Kingdom, Russia and Turkey (the “European Territory”).

The licenses granted to Angelini include sublicenses under the Lundbeck Agreement, as well as licenses under the Company’s patents and know-how covering OV101.

Angelini has the exclusive right, at its election, to develop and commercialize OV101 for the treatment of Fragile X Syndrome in the European Territory.

Angelini is required to use commercially reasonable efforts to conduct development activities for OV101, and following regulatory approval, to commercialize OV101 in each approved indication.

The Angelini License Agreement also provides for a transfer, at

Angelini’ s expense, of the relevant manufacturing technology from the Company and Lundbeck to Angelini, in order to enable Angelini to assume responsibility for its own manufacture and supply of OV101 in the future.

Under the Angelini License Agreement, Angelini made an upfront payment to the Company of $20.0 million.

In addition, Angelini will be required to make milestone payments to the Company upon the completion of the specified components of the technology transfer, and achievement of specified regulatory milestones for OV101 in Angelman syndrome of up to $50.0 million in the aggregate, as well as up to $162.5 million in sales milestone payments for achievement of specified levels of net sales in the European Territory.

Either party may terminate the Angelini License Agreement for an uncured material breach of the other party or in the case of insolvency.

The Company may terminate the Angelini License Agreement if Angelini challenges any of the licensed patents.

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 1. Financial Statements