Ovid Therapeutics Inc. 10-Q

Item 1. Financial Statements. OVID THERAPEUTICS INC. Condensed Consolidated Balance Sheets September 30, December 31, 2020 2019 Assets (unaudited) Current assets: Cash and cash equivalents $ 86,866,275 $ 41,897,144 Short-term investments - 34,841,969 Related party receivable 648,995 1,131,146 Prepaid expenses and other current assets 2,831,564 1,942,933 Total current assets 90,346,834 79,813,192 Long-term prepaid expenses 599,046 359,539 Security deposit 154,376 135,390 Property and equipment, net 137,799 68,363 Other assets 360,961 467,247 Total assets $ 91,599,016 $ 80,843,731 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,161,801 $ 3,256,098 Accrued expenses 11,420,475 7,266,706 Deferred revenue, current 3,150,454 - Related party payable 226,536 10,804 Total current liabilities 17,959,266 10,533,608 Deferred revenue, net of current portion 9,935,512 - Related party payable - noncurrent 61,200 286,562 Total liabilities 27,955,978 10,820,170 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 September 30, 2020 and December 31, 2019, respectively $ 6 $ 8 Common stock, $0.001 par value; 125,000,000 shares authorized; 63,435,222 and 54,710,322 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 63,435 54,711 Additional paid-in-capital 335,742,193 283,122,894 Accumulated other comprehensive gain - 2,469 Accumulated deficit (272,162,596 ) (213,156,521 ) Total stockholders' equity 63,643,038 70,023,561 Total liabilities and stockholders' equity $ 91,599,016 $ 80,843,731 See accompanying notes to these unaudited condensed consolidated financial statements 4 OVID THERAPEUTICS INC. Condensed Consolidated Statements of Operations (unaudited) For the Three Months Ended September 30, For the Three Months Ended September 30, For the Nine Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Revenue: License revenue $ 6,914,034 $ — $ 6,914,034 $ — Operating expenses: Research and development $ 15,875,295 $ 11,597,633 $ 46,533,610 $ 30,052,432 General and administrative 7,442,401 5,168,103 20,220,160 14,089,106 Total operating expenses 23,317,696 16,765,736 66,753,770 44,141,538 Loss from operations (16,403,662 ) (16,765,736 ) (59,839,736 ) (44,141,538 ) Other (expense) income, net (21,127 ) 131,164 833,661 649,504 Net loss $ (16,424,789 ) $ (16,634,572 ) $ (59,006,075 ) $ (43,492,034 ) Net loss attributable to common stockholders $ (16,424,789 ) $ (16,634,572 ) $ (59,006,075 ) $ (43,492,034 ) Net loss per share attributable to common stockholders, basic and diluted $ (0.28 ) $ (0.43 ) $ (1.04 ) $ (1.21 ) Weighted-average common shares outstanding basic and diluted 59,406,215 38,504,825 56,586,640 35,872,441 See accompanying notes to these unaudited condensed consolidated financial statements 5 OVID THERAPEUTICS INC. Condensed Consolidated Statements of Comprehensive Loss (unaudited) For the Three Months Ended September 30, For the Three Months Ended September 30, For the Nine Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Net loss $ (16,424,789 ) $ (16,634,572 ) $ (59,006,075 ) $ (43,492,034 ) Other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities - - (2,469 ) 1,829 Comprehensive loss $ (16,424,789 ) $ (16,634,572 ) $ (59,008,544 ) $ (43,490,205 ) See accompanying notes to these unaudited condensed consolidated financial statements 6 OVID THERAPEUTICS INC. Condensed Consolidated Statements of Stockholders’ Equity (unaudited) Series A Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Shares Amount Shares Amount Capital Income Deficit Total Balance, December 31, 2019 7,762 $ 8 54,710,322 $ 54,711 $ 283,122,894 $ 2,469 $ (213,156,521 ) $ 70,023,561 ATM offering costs - - - - 2,053 - - 2,053 Stock-based compensation expense - - - - 1,302,931 - - 1,302,931 Issuance of common stock from employee stock purchase plan - - 43,743 43 83,067 - - 83,110 Other comprehensive income - - - - - 63,235 - 63,235 Net loss - - - - - - (20,030,090 ) (20,030,090 ) Balance, March 31, 2020 7,762 8 54,754,065 54,754 284,510,945 65,704 (233,186,611 ) 51,444,800 ATM offering costs - - - - (61,260 ) - - (61,260 ) Conversion of series A convertible preferred stock to common stock (2,256 ) (2 ) 2,256,000 2,256 (2,254 ) - - - Stock-based compensation expense - - - - 1,555,332 - - 1,555,332 Issuance of common stock from exercise of stock options - - 72,035 72 160,870 - - 160,942 Other comprehensive loss - - - - - (65,704 ) - (65,704 ) Net loss - - - - - - (22,551,196 ) (22,551,196 ) Balance, June 30, 2020 5,506 6 57,082,100 57,082 286,163,633 - (255,737,807 ) 30,482,914 Stock-based compensation expense - - - - 2,616,241 - - 2,616,241 Proceeds from August 2020 Offering, net of underwriting costs and commissions - - 6,250,000 6,250 46,725,185 - - 46,731,435 Issuance of common stock from employee stock purchase plan - - 61,721 62 120,294 120,356 Issuance of common stock from exercise of stock options - - 41,401 41 116,840 - - 116,881 Net loss - - - - - - (16,424,789 ) (16,424,789 ) Balance, September 30, 2020 5,506 $ 6 63,435,222 $ 63,435 $ 335,742,193 $ - $ (272,162,596 ) $ 63,643,038 Series A Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Shares Amount Shares Amount Capital Income Deficit Total Balance, December 31, 2018 - $ - 24,654,114 $ 24,654 $ 191,477,598 $ (1,829 ) $ (152,695,278 ) $ 38,805,145 Proceeds from February 2019 Offering, net of underwriting costs and commissions 2,500 3 13,993,778 13,994 30,508,031 - - 30,522,028 Stock-based compensation expense - - - - 1,642,540 - - 1,642,540 Issuance of common stock from employee stock purchase plan - - 45,126 45 73,059 - - 73,104 Other comprehensive income - - - - - 3,179 - 3,179 Net loss - - - - - - (13,800,195 ) (13,800,195 ) Balance, March 31, 2019 2,500 3 38,693,018 38,693 223,701,228 1,350 (166,495,473 ) 57,245,801 Underwriting costs related to February 2019 Offering - - - - (1,193 ) - - (1,193 ) Stock-based compensation expense - - - - 1,251,908 - - 1,251,908 Other comprehensive loss - - - - - (1,350 ) - (1,350 ) Net loss - - - - - - (13,057,267 ) (13,057,267 ) Balance, June 30, 2019 2,500 3 38,693,018 38,693 224,951,943 - (179,552,740 ) 45,437,899 Stock-based compensation expense - - - - 1,184,481 - - 1,184,481 Issuance of common stock from employee stock purchase plan - - 35,416 36 58,755 - - 58,791 Conversion of common stock to Series A convertible preferred stock 1,262 1 (1,262,000 ) (1,262 ) 1,261 - - - Net loss - - - - - - (16,634,572 ) (16,634,572 ) Balance, September 30, 2019 3,762 $ 4 37,466,434 $ 37,467 $ 226,196,440 $ - $ (196,187,312 ) $ 30,046,599 See accompanying notes to these unaudited condensed consolidated financial statements 7 OVID THERAPEUTICS INC. Condensed Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ (59,006,075 ) $ (43,492,034 ) Adjustments to reconcile net loss to cash used in operating activities: Stock-based compensation expense 5,474,504 4,078,929 Depreciation and amortization expense 223,807 201,201 Change in accrued interest and accretion of discount on short-term investments (199,408 ) 12,863 Change in operating assets and liabilities: Prepaid expenses and other current assets (888,631 ) 924,800 Security deposit (18,986 ) 8,605 Related party receivable 482,151 600,104 Long-term prepaid expenses (239,507 ) 1,790,941 Accounts payable (202,120 ) 1,455,155 Accrued expenses 4,223,397 (407,167 ) Deferred revenue 13,085,966 - Related party payable (9,630 ) 624,335 Net cash used in operating activities (37,074,532 ) (34,202,268 ) Cash flows from investing activities: Purchases of short-term investments (9,961,092 ) - Proceeds from maturities of short-term investments 45,000,000 5,000,000 Purchase of property and equipment (85,357 ) (25,911 ) Software development and other assets (214,842 ) (6,265 ) Net cash provided by investing activities 34,738,709 4,967,824 Cash flows from financing activities: Proceeds from August 2020 Offering, net of offering expenses 46,952,500 - Proceeds from February 2019 Offering, net of offering expenses - 30,520,835 ATM offering costs (128,835 ) - Proceeds from employee stock purchase plan 203,466 131,895 Proceeds from exercise of options 277,823 - Net cash provided by financing activities 47,304,954 30,652,730 Net increase in cash and cash equivalents 44,969,131 1,418,286 Cash and cash equivalents, at beginning of period 41,897,144 36,489,618 Cash and cash equivalents, at end of period $ 86,866,275 $ 37,907,904 Non-cash investing and financing activities: Software development and other costs in accrued expenses and accounts payable $ 25,598 $ 125,852 Purchase of property and equipment in accounts payable $ 26,082 $ 4,946 Offering costs in accrued expenses and accounts payable $ 221,065 $ — See accompanying notes to these unaudited condensed consolidated financial statements 8 OVID THERAPEUTICS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – NATURE OF OPERATIONS Ovid Therapeutics Inc. (the “Company”) was incorporated under the laws of the state of Delaware on April 1, 2014 and maintains its principal executive office in New York, New York. The Company commenced operations on April 1, 2014 (date of inception). The Company is a biopharmaceutical company focused exclusively on developing impactful medicines for patients and families living with rare neurological disorders. Since its inception, the Company has devoted substantially all of its efforts to business development, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through issuance of convertible preferred stock (“Preferred Stock”), common stock and other equity instruments. 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 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 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. These mitigating actions may not be successful in alleviating the substantial doubt about the Company’s ability to continue as a going concern. Further, the failure to raise capital as and when needed could have a negative impact on the Company’s financial condition and ability to pursue its business strategy. If the Company is unable to raise capital, it may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain drug candidates that the Company might otherwise seek to develop or commercialize independently. 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 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: obtaining regulatory approval of our late-stage product candidates; 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 candi dates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 11, 2020. 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 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 9 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 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 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. (B) Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in conformity with GAAP and include the accounts of Ovid Therapeutics Inc. and its wholly owned subsidiary, Ovid Therapeutics Hong Kong Limited. All intercompany transactions and balances have been eliminated in consolidation. (C) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ materially from those estimates. (D) Fair Value of Financial Instruments Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: • Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. • Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies. • Level 3—Unobservable inputs for the asset or liability. 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 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. 10 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 In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This new standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including loans and trade and other receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The standard also amends the impairment model for available-for-sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Under the new guidance, an entity recognizes an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as was previously required. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. 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. On August 29, 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other - Internal-Use Software (Subtopic 350-40) - which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU No. 2018-15 aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. According to the standard the balance sheet line item for the presentation of capitalized implementation costs should be the same as that for the prepayment of fees related to the hosting arrangement and the manner in which an entity classifies the cash flows related to capitalized implementation costs should be the same as that in which it classifies the cash flows for the fees related to the hosting arrangement. ASU 2018-15 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods therein. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance. The adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s financial statements and was adopted prospectively. On November 5, 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), - which amends ASC 808 to clarify when transactions between participants in a collaborative arrangement under ASC 808 are within the scope of the FASB’s new revenue standard, ASU 2014-09 (codified in ASC 606). The amendments require the application of ASC 606 existing guidance to determine the units of account that are distinct in a collaborative arrangement for purposes of identifying transactions with customers. If a unit of account within the collaborative arrangement is distinct and is with a customer, an entity shall apply the guidance in Topic 606 to that unit of account. In a transaction between collaborative participants, an entity is precluded by ASU 2018-18 from presenting a transaction together with “revenue from contracts with customers” unless the unit of account is within the scope of ASC 606 and the entity applies the guidance in ASC 606 to such unit of account. 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 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 September 30, 2020 and December 31, 2019: September 30, 2020 Amortized Gross unrealized Gross unrealized Fair cost holding gains holding losses value Cash $ 3,310,485 $ - $ - $ 3,310,485 Money market funds (a) 83,555,790 - - 83,555,790 Total cash and cash equivalents $ 86,866,275 $ - $ - $ 86,866,275 (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. 11 December 31, 2019 Amortized Gross unrealized Gross unrealized Fair cost holding gains holding losses value Cash $ 501,537 $ - $ - $ 501,537 Money market funds (a) 41,395,607 - - 41,395,607 Total cash and cash equivalents $ 41,897,144 $ - $ - $ 41,897,144 U.S. treasury notes (a) $ 34,839,500 $ 2,469 $ - 34,841,969 Total short-term investments $ 34,839,500 $ 2,469 $ - $ 34,841,969 (a) As of December 31, 2019, the Company's Level 1 assets consisted of money market funds and U.S. treasury notes totaling $76.2 million. The Company had no level 2 or level 3 assets or liabilities as of December 31, 2019. 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 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, December 31, 2020 2019 Furniture and equipment $ 305,156 $ 193,717 Less accumulated depreciation (167,357 ) (125,354 ) Total property and equipment, net $ 137,799 $ 68,363 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, December 31, 2020 2019 Clinical trials accrual $ 6,015,876 $ 3,235,527 Payroll and bonus accrual 2,759,967 2,728,495 Professional fees accrual 2,369,729 1,070,589 Other 274,903 232,095 Total $ 11,420,475 $ 7,266,706 NOTE 6 – STOCKHOLDERS’ EQUITY AND PREFERRED STOCK The Company’s capital structure consists of common stock and Preferred Stock. Pursuant to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to issue up to 125,000,000 shares of common stock and 10,000,000 shares of Preferred Stock. The Company has designated 10,000 of the 10,000,000 authorized shares of Preferred Stock as non-voting Series A Convertible Preferred Stock (“Series A Preferred Stock”). The holders of common stock are entitled to one vote for each share held. The holders of common stock have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Subject to preferences that may apply to any outstanding series of Preferred Stock, holders of the common stock are entitled to receive ratably any dividends declared on a non-cumulative basis. Shares of Series A Preferred Stock will be entitled to receive dividends at a rate equal to (on an as-if-converted-to-common stock basis), and in the same form and manner as, dividends actually paid on shares of common stock. The common stock is subordinate to all series of Preferred Stock with respect to rights upon liquidation, winding up and dissolution of the Company. The holders of common stock are entitled to liquidation proceeds after all liquidation preferences for the Preferred Stock are satisfied. 12 In June 2018, the Company entered into a sales agreement (the “ATM agreement”) with Cowen and Company, LLC (“Cowen”) under which the Company may offer and sell in “at the market offerings,” from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through Cowen acting as sales agent. 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 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. However, the holder will be prohibited, subject to certain exceptions, from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than, at the written election of the holder, either 9.99% or 14.99% of the total number of shares of common stock then issued and outstanding, which percentage may be changed at the holder’s election to any other number less than or equal to 19.99% upon 61 days’ notice to the Company; provided, however, that effective 61 days after delivery of such notice, such beneficial ownership limitations shall not be applicable to any holder that beneficially owns either 10.0% or 15.0%, as applicable based on the holder’s initial written election noted above, of the total number of shares of common stock issued and outstanding immediately prior to delivery of such notice. 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. 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 October and November 2019, the Company sold 10,350,000 shares of its common stock, which included the full exercise of the underwriters’ option to purchase additional shares, and 4,000 shares of Series A Preferred Stock at a public offering price of $2.50 and $2,500 per share, respectively, for net proceeds of $33.5 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company. 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 “Exchange 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. In February 2019, the Company sold 13,993,778 shares of its common stock and 2,500 shares of Series A Preferred Stock at a public offering price of $2.00 and $2,000 per share, respectively, for net proceeds of $30.5 million after deducting underwriting discounts and commission and other offering expenses payable by the Company (the “February 2019 Offering”). Dividends No dividends on the common stock shall be declared and paid unless dividends on the Preferred Stock have been declared and paid. Through September 30, 2020 , the Company has not declared any dividends. NOTE 7 – STOCK-BASED COMPENSATION On August 29, 2014, the Company’s Board of Directors adopted and approved the 2014 Equity Incentive Plan (the “2014 Plan”), which authorized the Company to grant shares of common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units. 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 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. Additionally, the 2017 Plan provides for the grant of performance cash awards. The Company's employees, officers, directors and consultants and advisors are eligible to receive awards under the 2017 Plan. Upon the adoption of the 2017 Plan, no further awards will be granted under the 2014 Plan. Pursuant to the terms of the 2017 Plan, on each January 1st, the plan limit shall be increased by the lesser of (x) 5% of the number of shares of common stock outstanding as of the immediately preceding December 31 and (y) such lesser number as the Board of Directors may determine in its discretion. 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 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 13 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 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 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. The vesting requirement is generally conditioned upon the grantee’s continued service with the Company during the vesting period. Once vested, all awards are exercisable from the date of grant until they expire. The option grants are non-transferable. Vested options generally remain exercisable for 90 days subsequent to the termination of the option holder’s service with the Company. In the event of option holder’s death or disability while employed by or providing service to the Company, the exercisable period extends to 12 months. 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 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 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. Topic 14D. 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 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 $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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Research and development $ 1,083,786 $ 545,742 $ 2,162,685 $ 1,872,617 General and administrative 1,532,454 638,740 3,311,819 2,206,312 Total $ 2,616,240 $ 1,184,482 $ 5,474,504 $ 4,078,929 14 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Stock options $ 2,580,129 $ 1,149,617 $ 5,366,792 $ 3,979,138 Employee Stock Purchase Plan 36,111 34,865 107,712 99,791 Total $ 2,616,240 $ 1,184,482 $ 5,474,504 $ 4,078,929 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, 2020 2019 2020 2019 Weighted Average Weighted Average Weighted Average Weighted Average Volatility 81.79 % 76.55 % 80.58 % 84.38 % Expected term in years 5.61 6.08 5.73 6.07 Dividend rate 0.00 % 0.00 % 0.00 % 0.00 % Risk-free interest rate 0.39 % 1.72 % 0.67 % 2.43 % Fair value of option on grant date $ 3.10 $ 1.44 $ 2.97 $ 1.52 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, 2020 2019 2020 2019 Weighted Average Weighted Average Weighted Average Weighted Average Volatility 73.90 % - 74.37 % 74.56 % Expected term in years 5.88 - 5.64 5.30 Dividend rate 0.00 % - 0.00 % 0.00 % Risk-free interest rate 2.36 % - 2.32 % 2.37 % Fair value of option on measurement date $ 1.15 - $ 1.18 $ 1.07 The following table summarizes the number of options outstanding and the weighted average exercise price: Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Shares Price Life in Years Value Options outstanding December 31, 2019 7,405,295 $ 5.82 8.01 $ 4,488,930 Granted 1,646,660 4.82 9.65 Exercised (113,436 ) 2.45 - $ 488,384 Forfeited or expired (360,605 ) 5.12 - Options outstanding September 30, 2020 8,577,914 $ 5.70 7.31 $ 10,465,784 Vested and exercisable at September 30, 2020 4,020,074 $ 7.45 5.52 $ 1,772,932 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 The Company did not record a federal or state income tax provision for the periods presented as it has incurred net losses since inception. 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 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. 15 NOTE 9 – COMMIT MENTS AND CONTINGENCIES License Agreements On March 26, 2015, the Company entered into an exclusive agreement with H. Lundbeck A/S (“Lundbeck”) for a worldwide perpetual licensing right related the research, development and commercialization of OV101 (the “Lundbeck Agreement”). On May 10, 2019, the parties amended the Lundbeck License . Pursuant to the amended Lundbeck license agreement, the Company agreed to make milestone payments totaling up to $189.0 million upon the achievement of certain development, regulatory and sales milestones. The first payment of $1.0 million is due upon the successful completion of the first Phase 3 trial for a product in which OV101 is an active ingredient. In addition, the agreement calls for the Company to pay royalties for an initial term based on a low double-digit percentage of sales and provides for the reduction of royalties in certain limited circumstances. 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. 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. The Company is responsible for all ongoing costs of filing, prosecuting and maintaining the Northwestern Patents, but also has the right to control such activities using its own patent counsel. In consideration for the rights granted to the Company under the Northwestern agreement, the Company is required to pay to Northwestern up to an aggregate of $5.3 million upon the achievement of certain development and regulatory milestones for the first product covered by the Northwestern Patents, and, upon commercialization of any such products, will be required to pay to Northwestern a tiered royalty on net sales of such products by the Company, its affiliates or sublicensees, at percentages in the low to mid single-digits, subject to standard reductions and offsets. The Company’s royalty obligations continue on a product-by-product and country-by-country basis until the later of the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country and 10 years following the first commercial sale of such product in such country. If the Company sublicenses a Northwestern Patent Right, it will be obligated to pay to Northwestern a specified percentage of sublicense revenue received by the Company, ranging from the high single digits to the low-teens. The Northwestern agreement requires that the Company use commercially reasonable efforts to develop and commercialize at least one product that is covered by the Northwestern Patent Rights. Unless earlier terminated, the Northwestern agreement will remain in force until the expiration of the Company’s payment obligations thereunder. The Company has the right to terminate the agreement for any reason upon prior written notice or for an uncured material breach by Northwestern. Northwestern may terminate the agreement for the Company’s uncured material breach or insolvency. As of September 30, 2020, none of these contingent payments were considered probable. Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company is not currently involved in any legal matters arising in the normal course of business. Under the terms of their respective employment agreements, certain of our executive officers are eligible to receive severance payments and benefits upon a termination without “cause” or due to “permanent disability,” or upon “resignation for good reason,” contingent upon the executive officer’s delivery to the Company of a satisfactory release of claims, and subject to the executive officer’s compliance with non-competition and non-solicitation restrictive covenants. Pursuant to the Northwestern agreement, Northwestern granted the Company an exclusive license to certain patent rights and know-how, including a patent application covering a specified composition of matter (the “Patent Application”). Northwestern previously entered into a license agreement with Catalyst Pharmaceuticals, Inc. (“Catalyst”), dated August 27, 2009, pursuant to which Northwestern granted Catalyst rights under certain intellectual property rights covering a different composition of matter (the “Catalyst License”). In addition, the Company is a party to a confidential disclosure agreement with Catalyst, dated September 16, 2016 (the “CDA”). 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 16 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 th e 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 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. 17 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 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. Upon the first patient enrollment in the first Phase 3 trial for the first of the initial indications the Company and Takeda are focusing on in the Takeda collaboration, the Company is obligated to issue to Takeda the number of unregistered shares of the Company’s common stock equal to the lesser of (a) 8% of the Company outstanding capital stock (including preferred stock on an as-converted basis) on the issuance date or (b) $50.0 million divided by the applicable share price. The remaining potential global commercial and regulatory milestone payments equal approximately $35.0 million and can be satisfied in cash or unregistered shares of the Company’s common stock at its election, unless certain events occur. 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 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. Either party may terminate the Takeda collaboration because of the other party’s uncured material breach or insolvency, for safety reasons, or, after completion of the first proof of mechanism clinical trial, for convenience. Takeda may terminate the Takeda collaboration for the Company’s (or the Company’s sublicensee’s) challenge to the patents licensed under the Takeda collaboration. If the collaboration is terminated by Takeda for material breach by the Company, bankruptcy or patent challenge or by the Company for convenience or safety reasons, the Company’s rights to the products will cease, the Company will transition all activities related to the products to Takeda, and the Company will grant Takeda an exclusive, royalty-bearing license under certain patents and other intellectual property controlled by the Company to commercialize OV935 and products containing OV935 for the treatment of certain rare neurological disorders. If the collaboration is terminated by the Company for Takeda’s material breach or bankruptcy or by Takeda for convenience or safety reasons, Takeda’s rights to the products will cease, Takeda will transition all activities related to the products to the Company, and Takeda will grant the Company an exclusive, royalty-bearing license under certain patents and other intellectual property controlled by Takeda to commercialize OV935 and products containing OV935 for the treatment of certain rare neurological disorders. NOTE 11 – RELATED PARTY TRANSACTIONS As part of the Company’s collaboration agreement with Takeda the Company recognized a long-term liability representing long-term prepaid expenses to be reimbursed to Takeda. On March 24, 2019, the Company entered into a separation and consulting agreement with Dr. Matthew During in connection with Dr. During’s resignation as President and Chief Scientific Officer with the Company effective as of April 1, 2019. Pursuant to the separation and consulting agreement, Dr. 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. Dr. 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 18 Board and $150,000 per year for other advisory and cons ulting services. Further, Dr. 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 mile stone, subject to Dr. During’s continued service through such vesting date. In the event such option does not vest by December 31, 2020, the stock option will expire. Provided further, in recognition of Dr. During’s service on the Scientific Advisory Board , Dr. 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. Either Dr. 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. During, including any obligation to pay furth er consulting fees. In February 2019, the Company issued and sold an aggregate of 6,325,000 shares of common stock and 2,500 shares of Series A Preferred Stock to entities affiliated with Takeda, its collaboration partner and an existing stockholder, entities affiliated with Biotechnology Value Fund, L.P., an existing stockholder, and Dr. Jeremy M. Levin, its Chief Executive Officer and Chairman, for aggregate gross proceeds of $17.7 million. In October and November 2019, the Company issued and sold an aggregate of 4,058,000 shares of common stock and 2,000 shares of Series A Preferred Stock to entities affiliated with Takeda, its collaboration partner and an existing stockholder, entities affiliated with Biotechnology Value Fund, L.P., an existing stockholder, and Dr. Jeremy M. Levin, its Chief Executive Officer and Chairman, for aggregate gross proceeds of $10.2 million. In September 2019, the Company entered into an exchange agreement with 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. In May 2020, entities affiliated with Biotechnology Value Fund, L.P. 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 Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding during the period. For all periods presented, the common shares underlying the options have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per common share are the same. Under the terms of the Series A Preferred Stock issued in 2019, Preferred stockholders do not share in losses of the Company and have no obligation to fund losses or transfer assets. Since there is a loss, diluted EPS should be computed in the same manner as basic EPS and because no potential common shares shall be included in the computation of any diluted per-share amounts when a loss exists, the Series A Preferred Stock should be excluded from the computation of basic and diluted EPS. 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, 2020 2019 Stock options to purchase common stock 8,577,914 5,878,758 Series A convertible preferred stock 5,506 3,762 19