What changed in this filing

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Item 9A. Controls and Procedures

2021-03-15 compared with 2020-03-11 · 207 added, 160 removed, 588 unchanged (38% of the section changed)

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Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the information set forth in the section titled “Independent Registered Public Accounting Firm Fees” contained in our 2020 Proxy Statement.

The information required by this item is incorporated by reference to the information set forth in the section titled “Independent Registered Public Accounting Firm Fees” and “Pre-Approval Policies and Procedures” contained in our 2021 Proxy Statement.

Exhibits, Financial Statements and Schedules

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Description of the Securities of Ovid Therapeutics Inc.

(incorporated herein by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K (File No.

001-38085), filed with the Commission on March 12, 2020).

Form of Series A Preferred Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No.

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001-38085), filed with the Commission on May 22, 2017).

Non-Employee Director Compensation Plan .

Non-Employee Director Compensation Plan (incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K (File No.

001-38085), filed with the Commission on March 12, 2020) .

Executive Employment Agreement between the Registrant and Jeremy M.

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333-217245), filed with the Commission on April 10, 2017).

Second Amended and Restated Executive Employment Agreement between the Company and Amit Rakhit, effective November 1, 2019.

Third Amended and Restated Executive Employment Agreement between the Company and Tim Daly, effective December 18, 2019.

Second Amended and Restated Executive Employment Agreement between the Company and Amit Rakhit, effective November 1, 2019 (incorporated herein by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K (File No.

001-38085), filed with the Commission on March 12, 2020 .

Third Amended and Restated Executive Employment Agreement between the Company and Tim Daly, effective December 18, 2019 (incorporated herein by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K (File No.

001-38085), filed with the Commission on March 12, 2020 .

Executive Employment Agreement between the Company and Jeff Rona, effective September 30, 2020

Executive Employment Agreement between the Company and Jason Tardio, effective October 21, 2019

Amended and Restated Executive Employment Agreement between the Company and Thomas Perone, effective January 1, 2020

License Agreement by and between H.

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001-38085), filed with the Commission on June 17, 2019).

Collaboration and License Agreement, by and between the Company and Angelini Pharma Rare Diseases AG, dated July 9, 2020 .

Consent of Independent Registered Public Accounting Firm.

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Not applicable.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.

OVID THERAPEUTICS INC.

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/s/ Timothy Daly

Executive Vice President, Finance, Corporate Controller & Treasurer

(Principal Financial and Accounting Officer)

POWER OF ATTORNEY

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Notes to Consolidated Financial Statements

Report of Independent Regist ered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

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We have audited the accompanying consolidated balance sheets of Ovid Therapeutics Inc.

and subsidiary (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the two‑year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 31, 2019, in conformity with U.S.

and subsidiary (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

generally accepted accounting principles.

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Related party payable

Deferred revenue - current

Total current liabilities

Related party payable - noncurrent

Deferred revenue, net of current portion

Total liabilities

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10,000,000 shares authorized;

Series A convertible preferred stock, 10,000 and zero shares designated, 7,762 and zero shares issued and outstanding at

December 31, 2019 and 2018, respectively

Series A convertible preferred stock, 10,000 shares designated, 3,250 and 7,762 shares issued and outstanding at December 31, 2020 and 2019, respectively

Common stock, $0.001 par value;

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Additional paid-in-capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Accumulated deficit

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For the Year Ended December 31,

License and other revenue

Operating expenses:

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Loss from operations

Interest income

Other income, net

Net loss attributable to common stockholders

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For the Year Ended December 31,

Other comprehensive income (loss):

Unrealized income (loss) on available-for-sale securities

Other comprehensive (loss) income:

Unrealized (loss) gain on available-for-sale securities

Comprehensive loss

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Balance, December 31, 2019

Proceeds from February Offering, net of underwriting costs and commissions

Issuance of common stock from employee stock purchase plan

Conversion of common stock to series A convertible preferred stock

Proceeds from October Offering, net of underwriting costs and commissions

Proceeds from ATM transactions, net of underwriting costs and commissions

Issuance of common stock from exercise of stock options

Conversion of series A convertible preferred stock to common stock

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

Stock-based compensation expense

Other comprehensive income

Other comprehensive loss

Balance, December 31, 2020

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Balance, December 31, 2018

Issuance of common stock from exercise of stock options

Proceeds from February Offering, net of underwriting costs and commissions

Issuance of common stock from employee stock purchase plan

Conversion of common stock to series A convertible preferred stock

Proceeds from October Offering, net of underwriting costs and commissions

Proceeds from ATM Offerings, net of underwriting costs and commissions

Stock-based compensation expense

Other comprehensive loss

Other comprehensive income

Balance, December 31, 2019

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Stock-based compensation expense

Depreciation and amortization

Loss on disposal of intangible assets

Depreciation and amortization expense

Change in accrued interest and accretion of discount on short-term investments

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Accrued expenses

Deferred revenue

Related party payable

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Proceeds from maturities of short-term investments

Purchases of property and equipment

Purchase of property and equipment

Software development and other assets

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from August 2020 Offering, net of offering expenses

Proceeds from February and October 2019 Offerings, net of offering expenses

Proceeds from ATM Offering, net of offering expenses

Proceeds from ATM Offerings, net of offering expenses

Proceeds from employee stock purchase plan

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Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents, at beginning of period

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Non-cash investing and financing activities:

Offering costs in accrued expenses

Software development and other costs in accounts payable and accrued expenses

Purchase of property and equipment in accounts payable

Software development and other costs in accrued expenses and accounts payable

Offering costs in accrued expenses and accounts payable

See accompanying notes to these consolidated financial statements

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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 has not generated any revenue.

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 December 31, 2019, the Company had approximately $76.7 million in cash, cash equivalents and short-term investments.

The actual amount of cash that the Company will need to operate is subject to many factors.

Management’s plans to mitigate any unexpected shortfall of capital, to support future operations, include raising additional funds.

There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company or whether the Company will become profitable and generate positive operating cash flow.

The Company has not generated any revenue since inception.

As a result, t he Company has incurred operating losses since inception and requires significant cash resources to continue to execute its business plan.

The Company had an accumulated deficit of $213.2 million as of December 31, 2019 and cash outflows from operating activities of $51.1 million for the year ended December 31, 2019 .

The Company 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 in the form of debt or equity financing to fund its operations.

Management believes that the Company’s existing cash, cash equivalents and short-term investments as of December 31, 2019 will be sufficient to fund its current operating plans through at least the next 12 months from the date of filing of this Annual Report on Form 10-K.

Management expects that future sources of funding may include new or expanded partnering arrangements and sales of equity or debt securities.

Adequate additional funding may not be available to the Company on acceptable terms or at all.

The failure to raise capital as and when needed could have a negative impact on the Company’s financial condition and ability to pursue business strategies.

The Company 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.

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 December 31, 2020, the Company had approximately $72.0 million in cash and cash equivalents.

Since inception, the Company has generated $12.6 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 recurring negative operating cash flows and requires significant cash resources to execute its business plans.

The Company has an accumulated deficit of $294.2 million as of December 31, 2020 , working capital of $52.8 million and had cash outflows from operating activities of $51.6 million for the year ended December 31, 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 ongoing operations are highly dependent on the Company’s ability to obtain additional sources of funding.

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

Management’s response to these conditions and events is that the successful closing of the Takeda License and Termination Agreement with Takeda (see note 12) will provide the liquidity needed to alleviate the substantial doubt referred to above.

As described in note 12, there are certain conditions to close the Takeda License and Termination Agreement, however management has determined that the likelihood of not closing in the first half of 2021 is remote.

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 predicted 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.

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 candidates;

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

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Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders.

For the year ended December 31, 2019 the Company had other comprehensive income comprised of the gain on debt securities.

(F) Collaboration Arrangement

License and Collaboration Agreement with Takeda Pharmaceutical Company Limited

The Company accounts for the license and collaboration agreement with Takeda Pharmaceutical Company Limited (“Takeda”) in accordance with Accounting Standard Codification (“ASC”) 808 – “Collaborative Arrangements.” As Ovid and Takeda are sharing 50/50 in the drug development and throughout the life of this compound, the Company records 50% of the development costs in research and development.

Under the terms of the current license and collaboration agreement with Takeda Ovid and Takeda are sharing 50/50 in the drug development, the Company records 50% of the development costs in research and development.

When Ovid incurs the majority of the costs and Takeda transfers a payment to Ovid to equalize the costs, Ovid records the participation by Takeda as a reduction of its research and development expenses, as the parties under the collaboration are sharing in the costs and the payment represents reimbursement of costs by Takeda.

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The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received.

The fair value is measured at the value of the Company’s common stock at the earlier of the date that th e commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.

The fair value is measured at the value of the Company’s common stock award at the earlier of the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.

(L) Fair Value of Financial Instruments

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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.

There was no Preferred Stock issued or outstanding in 2018.

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

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For the years ended December 31, 2020 and 2019 the Company contributed $321,000 and $285,000, respectively.

(Q) Recent Accounting Pronouncements

(Q) 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 using expected cost and comparable transactions.

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

Non-refundable upfront fees allocated to licenses 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.

( R) Recent Accounting Pronouncements

Recent accounting standards which have been adopted

On June 20, 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting.

This new standard simplifies the accounting for share-based payments granted to nonemployees for goods and services.

The standard supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees.

As such, among others, the measurement date for nonemployee awards would generally be the grant date same as the measurement date for employee equity awards and for performance-based awards, an entity is required to recognize any cost on the basis of the probable outcome of the performance conditions using the grant-date fair value of the award.

ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Due to the immaterial volume of nonemployee equity-based awards as well as the immaterial fair value of such awards this standard did not have a material impact on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).

This new standard was issued to increase transparency and comparability among entities by recognizing for all leases lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements.

This new standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The adoption of this standard did not have a material impact on the Company’s financial statements.

New accounting standards which have not yet been adopted

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 Company has a collaboration agreement with Takeda.

However, the Company does not expect these amendments to have an impact on its financial statements, as Takeda does not meet the definition of a customer.

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.

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.

When prospective transition is chosen, entities must apply the transition requirements to any eligible costs incurred after adoption.

The Company is in the process of assessing the impact of this standard on its financial statements.

On August 28, 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.

This standard changes the fair value measurement disclosure requirements of ASC 820.

The new standard eliminated certain disclosures, added new disclosures with regard to unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements, as well as modified certain disclosure.

ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein.

Early adoption is permitted.

The ASU requires application of the prospective method of transition for the aforementioned new disclosure requirements and for modified disclosure with regard to measurement uncertainty while all other amendments made by the ASU must be applied retrospectively to all periods presented.

The Company is in the process of assessing the impact of this standard on its financial statements.

In June 2016, the FASB issued ASU No.

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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 will recognize 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 is currently required.

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.

The Company does not expect the adoption of this standard to have a material impact on its financial statements due to the immaterial level of its unrealized losses on available-for-sale securities and its immaterial level of loans and receivables.

As of December 31, 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 consolidated financial statements.

On August 29, 2018, the FASB issued ASU No.

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 consolidated financial statements and was adopted prospectively.

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.

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

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements.

ASU 2020-10 is effective for annual and interim periods beginning after December 15, 2020.

The Company early adopted ASU 2020-10 for the reporting period ending December 31, 2020.

The adoption of this update did not have a material effect on the Company s consolidated financial statements.

N OTE 3 – CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

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holding losses

Money market funds (a)

Money market funds

Total cash and cash equivalents

treasury notes (a)

treasury notes

Total short-term investments

(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.

December 31, 2019

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holding losses

Money market funds (a)

Money market funds

Total cash and cash equivalents

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Total short-term investments

(a) As of December 31, 2018, the Company's Level 1 assets consisted of money market funds and U.S.

treasury notes totaling $40.5 million.

The Company had no level 2 or level 3 assets or liabilities as of December 31, 2018.

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.

As of December 31, 2018, the aggregate fair value of securities that were in an unrealized loss position for less than 12 months was $5.0 million.

The Company did not hold any securities in an unrealized gain or loss position for more than 12 months as of December 31, 2019.

There were no realized gains or losses on available-for-sale securities during the years ended December 31, 2019 and 2018.

The Company did not hold any securities that were in an unrealized loss position for more than 12 months as of December 31, 2020 and 2019.

There were no material realized gains or losses on available-for-sale securities during the years ended December 31, 2020 and 2019.

NOTE 4 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

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The holders of common stock are entitled to liquidation proceeds after all liquidation preferences for the Preferred Stock are satisfied.

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.

During the year ended December 31, 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 .

There were 7,762 shares of Series A Preferred Stock outstanding as of December 31, 2019, issued pursuant to the February Offering, the October Offering and the Exchange Transaction (each as described below).

In June 2018, the Company entered into a sales agreement (the “2018 ATM agreement”) with Cowen and Company, LLC (“Cowen”) under which the Company offered and sold 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.

During the year ended December 31, 2019, the Company sold 6,893,888 shares of its common stock under the 2018 ATM agreement for net proceeds of $22.3 million after deducting sales agent commissions and other offering expenses payable by the Company, (the “ATM Offerings”) .

In November 2020, the Company entered into a new sales agreement (the “2020 ATM agreement”) with Cowen and 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 $75.0 million through Cowen acting as sales agent.

There were 3,250 and 7,762 shares of Series A Preferred Stock outstanding as of December 31, 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.

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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 December 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 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, (the “October 2019 Offering”).

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 Offering”).

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 o n the exemption from registration contained in Section 3(a)(9) of the Securities Act.

(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.

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

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The initial reserve of shares of common stock that may be issued 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.

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.

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As of December 31, 2019, there were 2,199,765 shares of the Company’s common stock reserved for issuance under the 2017 Plan.

O n January 1, 20 20 , an additional 2,735,516 shares were reserved for issuance under the 2017 Plan.

As of December 31, 2020 , there were 1,771,772 shares of the Company’s common stock reserved 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 IPO on May 4, 2017.

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On January 1, 2019, an additional 246,541 shares were reserved for issuance under the 2017 ESPP.

No shares were reserved for issuance under the 2017 ESPP during the year ended December 31, 2020.

As of December 31, 2020, there were 553,552 shares of the Company’s common stock reserved for issuance under the 2017 ESPP.

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At December 31, 2020, there were 125,000 performance-based options outstanding and unvested that include options to vest upon the achievement of certain research and development milestones .

No expense has been recorded as achievement of the performance condition is not probable as of December 31, 2019.

The fair value of options granted during the years ended December 31, 20 20 and 201 9 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 d etailed in the table below.

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.

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

The Company granted 175,000 and zero stock options to nonemployee consultants for services rendered during the years ended December 31, 2019 and 2018, respectively.

The Company granted 10,000 and 175,000 stock options to nonemployee consultants for services rendered during the years ended December 31, 2020 and 2019, respectively.

There were 32,500 and 145,204 unvested nonemployee options outstanding as of December 31, 2020 and 2019, respectively.

Total expense recognized related to the nonemployee stock options for the years ended December 31, 2020 and 2019 was $257,431 and $51,666, respectively.

During the year ended December 31, 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).

Total unrecognized compensation expenses related to the nonemployee stock options was $186,823 as of December 31, 2020.

During the years ended December 31, 2019, and 2018, the Company recognized zero in expenses in both years for nonemployee performance-based option awards.

During the years ended December 31, 2020, and 2019, the Company recognized $115,240 and zero, respectively, in expenses for nonemployee performance-based option awards.

The Company granted 3,573,160 and 3,372,513 stock options to employees during the years ended December 31, 2020 and 2019, respectively.

There were 4,975,262 and 3,963,544 unvested employee options outstanding as of December 31, 2020 and 2019, respectively.

Total expense recognized related to the employee stock options for the years ended December 31, 2019, and 2018 was $5,044,807 and $6,821,298, respectively.

Total unrecognized compensation expense related to employee stock options was $9,533,344 as of December 31, 2019.

During the years ended December 31, 2019 and 2018, the Company recognized $9,391 and zero in expenses for employee performance-based option awards.

Total expense recognized related to the employee stock options for the years ended December 31, 2020 and 2019 was $7.1 million and $5.0 million, respectively.

Total unrecognized compensation expense related to employee stock options was $12.2 million as of December 31, 2020.

During the years ended December 31, 2020 and 2019, the Company recognized $2,340,808 and $9,391 in expenses for employee performance-based option awards.

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

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Vested and exercisable at December 31, 2020

At December 31, 2019 there was $9,837,812 of unamortized share–based compensation expense, which is expected to be recognized over a remaining average vesting period of 2.59 years.

At December 31, 2020, there was $12.3 million of unamortized share–based compensation expense, which is expected to be recognized over a remaining average vesting period of 3.04 years.

NOTE 8 – INCOME TAXES

At December 31, 2019, the Company has available approximately $ 163,600,000 and $174,100,000 of unused NOL carryforwards for federal and state tax purposes, respectively, that may be applied against future taxable income.

The Company also has approximately $ 163,000,000 of unused NOL carryforwards for New York City purposes.

At December 31, 2020, the Company has available approximately $ 238.6 million and $186.7 million of unused NOL carryforwards for federal and state tax purposes, respectively, that may be applied against future taxable income.

The Company also has approximately $ 165.4 million of unused NOL carryforwards for New York City purposes.

The NOL carryforwards will begin to expire in the year 2035 if not utilized prior to that date.

There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

The valuation allowance increased by approximately $22,467,000 and $18,748,000 during the years 2019 and 2018, respectively, and was approximately $76,500,000 and $54,033,000 at December 31, 2019 and 2018, respectively.

The valuation allowance increased by approximately $13.3 million and $22.5 million during the years 2020 and 2019, respectively.

The Company may be subject to the NOL utilization provisions of Section 382 of the Code.

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A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.

Thus, there would be no impact to the balance sheet or statement of operations if an adjustment

were required.

The Company would recognize both accrued interest and penalties related to unrecognized benefits in income ta x expense.

Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required.

The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax

The Company’s uncertain tax positions yet to be determined would be related to years that remain subject to examination by relevant tax authorities.

Since the Company is in a loss carryforward position, the Company is generally subject to examin ation by the U.S.

Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S.

federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

The Company currently has a federal income tax audit in progress for the tax year 2017 .

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows:

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Effective income tax (benefit) expense rate

(1) Inclusive of $5.8 million deferred tax benefit due to change in apportionment

NOTE 9 – COMMITMENTS AND CONTINGENCIES

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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.

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.

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NOTE 1 0 – COLLABORATION AGREEMENT

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 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 and a milestone payment related to the transfer of a specified amount of compound and related information to the Company of $25.0 million during the year ended December 31, 2020.

Angelini will be required to make additional 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 $55.0 million in the aggregate, as well as up to €162.5 million ($199.9 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 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 and (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 which was achieved and recognized in December 2020.

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.

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, the ongoing trials and $7.0 million for potential future trials.

Upon the transfer of the specified amount of compound and related information and acceptance by Angelini, Angelini was required to and made a $5.0 million payment.

This performance obligation was determined to be variable consideration which was constrained and not considered part of the upfront transaction price allocation.

Angelini will be required to make a separate $5.0 million tech transfer payment towards the $55.0 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 year ended December 31, 2020, the Company recognized $6.1 million of license revenue and $1.5 million relating to the progress of the ongoing trials as well as $5.0 million for the transfer of the specified amount of compound and related information.

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 requires no consequential continuing involvement by the Company.

The Company did not have any such revenue during the year ended December 31, 2019.

In addition, the Company recorded deferred revenue in the amount of approximately $12.4 million as of December 31, 2020 which will be recognized over the term of the ongoing trials based on the portion of total estimated expenses incurred.

The Company has classified deferred revenue as current or noncurrent based on the expected timing of such expenses.

Takeda Collaboration

On January 6, 2017, the Company entered into a license and collaboration agreement with Takeda, pursuant to which Takeda granted the Company an exclusive license to commercialize the compound TAK-935, which the Company refers to as OV935, in certain

territ ories, and a co-exclusive worldwide license, together with Takeda, to develop OV935.

In consideration of certain license rights granted to the Company pursuant to the Takeda collaboration, the Company issued 1,781,996 shares of its Series B-1 Preferred Sto ck, pursuant to a Series B-1 preferred stock purchase agreement entered into on January 6, 2017, at an ascribed price per share of $14.513 on January 6, 2017 for an aggregate fair value of $25,861,228, which was recorded as research and development expense at the date of the transaction.

In consideration of certain license rights granted to the Company pursuant to the Takeda collaboration, the Company issued 1,781,996 shares of its Series B-1 Preferred Stock, pursuant to a Series B-1 preferred stock purchase agreement entered into on January 6, 2017, at an ascribed price per share of $14.513 on January 6, 2017 for an aggregate fair value of $25.9 million, which was recorded as research and development expense at the date of the transaction.

The 1,781,996 shares of Series B-1 Preferred Stock held by Takeda automatically converted into 1,781,996 shares of the Company’s common stock upon the completion of its IPO in 2017.

Under the Takeda collaboration, the Compa ny 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 collaborat ion, 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 on the issuance date or (b) $50.0 million divided by the applicable shar e price, unless certain events occur.

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 on the issuance date or (b) $50.0 million divided by the applicable share price, unless certain events occur.

In the event such payment would cause Takeda to own over 19.99% of our outstanding capital stock or other events occur, such payment must be paid in cash .

The remaining potential global commercial and regulatory miles tone 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.

As of December 31, 2019 , none of these contingent payments were considered proba ble.

During the year ended December 31, 2019 , the Company recognized $ 4,707,940 in research and development expenses representing research and development expenses reimburs able to the Company from Takeda , of which $1,131,146 wa s included in related part y receivable as of December 31, 2019.

During the year ended December 31, 2018, the Company recognized a credit in research and development expenses of $ 1,280,525 , representing costs reimbursed to the Company from Takeda , of which $600,104 was included in r elated party receivable as of December 31, 2018 .

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.

As of December 31, 2020, none of these contingent payments have been triggered.

During the year ended December 31, 2020, the Company recognized $0.7 million in research and development expenses representing research and development expenses reimbursable to the Company from Takeda, of which $0.1 million was included in related party receivable as of December 31, 2020 and $2.1 million was included in related party payable as of December 31, 2020.

During the year ended December 31, 2019, the Company recognized a credit in research and development expenses of $ 4.7 million representing costs reimbursable to the Company from Takeda, of which $1.1 million was included in related party receivable as of December 31, 2019 .

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

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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 us, and Takeda will grant us 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.

In March 2021, the Company entered into a royalty, license and termination agreement with Takeda (see note 12).

NOTE 11 – RELATED PARTY TRANSACTIONS

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During, including any obligation to pay further consulting fees.

In the February Offering, 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.

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, a collaboration partner and an existing stockholder, entities affiliated with Biotechnology Value Fund, L.P., an existing stockholder, and Dr.

Levin, its Chief Executive Officer and Chairman, for aggregate gross proceeds of $17.7 million.

In the October Offering, 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.

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, a collaboration partner and an existing stockholder, entities affiliated with Biotechnology Value Fund, L.P., an existing stockholder, and Dr.

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.

NOTE 12 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables contain selected quarterly financial information from 2019 and 2018.

The Company believes that the following information reflects all normal recurring adjustments necessary for a fair statement of the information for the periods presented.

The operating results for any quarter are not necessarily indicative of results for any future period.

Three Months Ended

(in thousands, except per share data)

September 30,

Total operating expenses

Total interest income

Net loss applicable to common

Net loss per share applicable to common

stockholders - basic and diluted

Three Months Ended

(in thousands, except per share data)

September 30,

Total operating expenses

Total interest income

Net loss applicable to common

Net loss per share applicable to common

stockholders - basic and diluted

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.

In December 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.

NOTE 12 – SUBSEQUENT EVENTS

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From January 1, 2021 t hrough the date of the filing of this Form 10-K, the Company has granted option awards for an aggregate of 643,600 shares of common stock to employees with a weighted average exercise price of $3.18.

Royalty, License and Termination Agreement with Takeda

In March 2021, the Company entered into a royalty, license and termination agreement (the “Takeda License and Termination Agreement”) with Takeda under which Takeda will secure rights to the Company’s 50% global share in soticlestat, and an exclusive license under our relevant intellectual property rights and global rights at closing from the Company to develop and commercialize the investigational medicine OV935 for the treatment of developmental and epileptic encephalopathies, including Dravet syndrome and Lennox-Gastaut syndrome.

Under the Takeda License and Termination Agreement, all rights in OV935 will be owned by Takeda, or exclusively licensed to Takeda by the Company.

Takeda will assume sole responsibility for further worldwide development and commercialization, and the Company will no longer have any financial obligation to Takeda under the original collaboration agreement, including for milestone payments or any future development and commercialization costs.

Should the Company close the Takeda License and Termination Agreement, the Company will receive an upfront payment of $196.0 million at closing and will be eligible to receive up to an additional $660.0 million upon achieving development, regulatory and sales milestones.

In addition, the Company would be entitled receive tiered royalties beginning in the low double-digits, and up to 20% on sales of OV935, if approved and commercialized.

The Company expects to close the Takeda License and Termination Agreement in the first half of 2021, subject to the satisfaction of closing conditions, including regulatory review by the appropriate regulatory agencies under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Either party may terminate the agreement if it does not close by May 14, 2021.

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

What changed 10-K

Item 9A. Controls and Procedures