Ovid Therapeutics Inc. 10-K

Item 9A. Controls and Procedures. Management’s Evaluation of our Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. As of December 31, 2020, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of December 31, 2020 our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, under the supervision and with the participation of our Chief Executive Officer and Principal Financial and Accounting Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on the results of its evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020. Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies.” Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during our most recent quarter ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information . None. 70 PART III Item 10. Directors, Executive Officers, and Corporate Governance The information required by this item is incorporated by reference to the information set forth in the sections titled “Proposal 1 – Election of Directors,” “Executive Officers,” and “Information Regarding the Board and Corporate Governance” and “Delinquent Section 16(a) Reports,” if any, in our 2021 Proxy Statement. Item 11. Executive Compensation The information required by this item is incorporated by reference to the information set forth in the section titled “Executive Officer and Director Compensation” in our 2021 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to the information set forth in the section titled “Security Ownership of Certain Beneficial Owners and Management and “Equity Compensation Plan Information” in our 2021 Proxy Statement. Item 13. Certain Relationships and Related Transactions and Director Independence The information required by this item is incorporated by reference to the information set forth in the section titled “Transactions with Related Persons” and “Information Regarding the Board and Corporate Governance – Board Independence” in our 2021 Proxy Statement. Item 14. 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” and “Pre-Approval Policies and Procedures” contained in our 2021 Proxy Statement. 71 PAR T IV Item 15. Exhibits, Financial Statements and Schedules (a)(1) Financial Statements. The response to this portion of Item 15 is set forth under Item 8 hereof. (a)(2) Financial Statement Schedules. All schedules have been omitted because they are not required or because the required information is given in the Financial Statements or Notes thereto. (a)(3) Exhibits. The exhibits listed below are filed as part of this Annual Report on Form 10-K. Number Description 3 .1 Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-38085), filed with the Commission on May 10, 2017). 3.2 Corrected Amended and Restated Certificate of Designation of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-38085), filed with the Commission on September 24, 2019). 3.3 Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-38085), filed with the Commission on May 10, 2017). 4.1 Form of Common Stock Certificate of the Company (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A (File No. 333-217245), filed with the Commission on April 25, 2017). 4.2 Second Amended and Restated Investors’ Rights Agreement, by and among the Company and certain of its stockholders, dated January 6, 2017 (incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 4.3 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). 4.4 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. 001-38085), filed with the Commission on February 21, 2019). 10.1+ Form of Indemnity Agreement by and between the Company and its directors and officers (incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.2+ 2017 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8 (File No. 001-38085), filed with the Commission on May 22, 2017). 10.3+ Forms of Option Grant Notice and Option Agreement under 2017 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.4+ 2014 Equity Incentive Plan, as amended (incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.5+ Amendment to 2014 Equity Incentive Plan, effective as of March 9, 2015 (incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.6+ Amendment to 2014 Equity Incentive Plan, effective as of June 4, 2015 (incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 72 10.7+ Amendment to 2014 Equity Incentive Plan, effective as of July 28, 2015 (incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.8+ Amendment to 2014 Equity Incentive Plan, effective as of February 11, 2016 (incorporated herein by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.9+ Form of Restricted Stock Purchase Agreement under the 2014 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.10+ Form of Stock Option Agreement—Early Exercise under the 2014 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.11+ Forms of Stock Option Agreement under the 2014 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.12+ 2017 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 4.14 to the Company’s Registration Statement on Form S-8 (File No. 001-38085), filed with the Commission on May 22, 2017). 10.13+ 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) . 10.14+ Executive Employment Agreement between the Registrant and Jeremy M. Levin, dated June 5, 2015 (incorporated herein by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.15+ 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 . 10.16+ 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 . 10.17+ Executive Employment Agreement between the Company and Jeff Rona, effective September 30, 2020 10.18+ Executive Employment Agreement between the Company and Jason Tardio, effective October 21, 2019 10.19+ Amended and Restated Executive Employment Agreement between the Company and Thomas Perone, effective January 1, 2020 10.20† License Agreement by and between H. Lundbeck A/S and the Company, dated March 25, 2015 (incorporated herein by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on May 2, 2017). 10.21† Collaboration and License Agreement, by and between the Company and Takeda Pharmaceutical Company Limited, effective January 6, 2017 (incorporated herein by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.22† Series B-1 Preferred Stock Purchase Agreement, by and between the Company and Takeda Pharmaceutical Company Limited, dated January 6, 2017 (incorporated herein by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1 (File No. 333-217245), filed with the Commission on April 10, 2017). 10.23† License Agreement by and between Northwestern University and the Company, dated December 15, 2016. (incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K (File No. 001-38085), filed with the Commission on April 10, 2017). 10.24^ First Amendment to License Agreement, by and between H. Lundbeck A/S and the Company, dated May 10, 2019 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A (File No. 001-38085), filed with the Commission on June 17, 2019). 73 10.2 5 † Collaboration and License Agreement, by and between the Company and Angelini Pharma Rare Diseases AG, dated July 9, 2020 . 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Power of Attorney (included on the signature page to this report). 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. + Indicates a management contract or compensatory plan. † Confidential treatment has been granted for certain portions of this exhibit. These portions have been omitted and filed separately with the SEC. ^ Pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated by the Securities and Exchange Commission, certain portions of this exhibit have been redacted. The Registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission, upon its request, an unredacted copy of this exhibit. Item 16. Form 10-K Summary Not applicable. 74 SIGNATURES 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. Date: March 15, 2021 By: /s/ Jeremy M. Levin Jeremy M. Levin Chief Executive Officer (Principal Executive Officer) Date: March 15, 2021 By: /s/ Timothy Daly Timothy Daly Executive Vice President, Finance, Corporate Controller & Treasurer (Principal Financial and Accounting Officer) POWER OF ATTORNEY Each person whose individual signature appears below hereby authorizes and appoints Jeremy M. Levin, DPhil, MB BChir and Timothy Daly, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Jeremy M. Levin, DPhil, MB BChir Jeremy M. Levin, DPhil, MB BChir Chief Executive Officer and Director (Principal Executive Officer) March 15, 2021 /s/ Timothy Daly Timothy Daly Executive Vice President, Finance and Corporate Controller (Principal Financial and Accounting Officer) March 15, 2021 /s/ Karen Bernstein, PhD Karen Bernstein, PhD Director March 15, 2021 /s/ Barbara Duncan Director March 15, 2021 Barbara Duncan /s/ Bart Friedman Bart Friedman Director March 15, 2021 /s/ Douglas Williams, PhD Douglas Williams, PhD Director March 15, 2021 75 OVID THERAPEUTICS INC. Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Comprehensive Loss F-5 Consolidated Statements of Changes in Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8–F-23 F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Ovid Therapeutics Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Ovid Therapeutics Inc. 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2015. New York, New York March 15, 2021 F-2 PART I—FINANCIA L INFORMATION Item 1. Financial Statements. OVID THERAPEUTICS INC. Consolidated Balance Sheets December 31, December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 72,033,930 $ 41,897,144 Short-term investments - 34,841,969 Related party receivable 141,763 1,131,146 Prepaid expenses and other current assets 2,667,508 1,942,933 Total current assets 74,843,201 79,813,192 Long-term prepaid expenses 477,171 359,539 Security deposit 150,626 135,390 Property and equipment, net 135,620 68,363 Other assets 318,900 467,247 Total assets $ 75,925,518 $ 80,843,731 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 5,446,206 $ 3,256,098 Accrued expenses 12,032,685 7,266,706 Related party payable 2,370,992 10,804 Deferred revenue - current 2,212,892 - Total current liabilities 22,062,775 10,533,608 Related party payable - noncurrent 61,200 286,562 Deferred revenue, net of current portion 10,169,887 - Total liabilities 32,293,862 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, 3,250 and 7,762 shares issued and outstanding at December 31, 2020 and 2019, respectively 3 8 Common stock, $0.001 par value; 125,000,000 shares authorized; 65,743,170 and 54,710,322 shares issued and outstanding at December 31, 2020 and 2019, respectively 65,743 54,711 Additional paid-in-capital 337,758,007 283,122,894 Accumulated other comprehensive income - 2,469 Accumulated deficit (294,192,097 ) (213,156,521 ) Total stockholders' equity 43,631,656 70,023,561 Total liabilities and stockholders' equity $ 75,925,518 $ 80,843,731 See accompanying notes to these consolidated financial statements F-3 OVID THERAPEUTICS INC. Consolidated Statements of Operations For the Year Ended December 31, For the Year Ended December 31, 2020 2019 Revenue: License and other revenue $ 12,617,221 $ - Operating expenses: Research and development 63,417,394 42,157,641 General and administrative 30,630,804 19,251,826 Total operating expenses 94,048,198 61,409,467 Loss from operations (81,430,977 ) (61,409,467 ) Other income, net 395,401 948,224 Net loss $ (81,035,576 ) $ (60,461,243 ) Net loss attributable to common stockholders $ (81,035,576 ) $ (60,461,243 ) Net loss per share attributable to common stockholders, basic and diluted $ (1.39 ) $ (1.54 ) Weighted-average common shares outstanding basic and diluted 58,451,293 39,217,223 See accompanying notes to these consolidated financial statements F-4 OVID THERAPEUTICS INC. Consolidated Statements of Comprehensive Loss For the Year Ended December 31, For the Year Ended December 31, 2020 2019 Net loss $ (81,035,576 ) $ (60,461,243 ) Other comprehensive (loss) income: Unrealized (loss) gain on available-for-sale securities (2,469 ) 4,298 Comprehensive loss $ (81,038,045 ) $ (60,456,945 ) See accompanying notes to these consolidated financial statements F-5 OVID THERAPEUTICS INC. Consolidated Statement of Changes in Stockholders’ Equity Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Shares Amount Shares Amount Capital Income/(Loss) 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 costs - - - - (114,936 ) - - (114,936 ) Issuance of common stock from employee stock purchase plan - - 105,464 105 203,361 - - 203,466 Issuance of common stock from exercise of stock options - - 165,384 165 300,656 300,821 Conversion of series A convertible preferred stock to common stock (4,512 ) (5 ) 4,512,000 4,512 (4,507 ) - - - Proceeds from August 2020 Offering, net of underwriting costs and commissions - - 6,250,000 6,250 46,725,185 - - 46,731,435 Stock-based compensation expense - - - - 7,525,354 - - 7,525,354 Other comprehensive loss - - - - - (2,469 ) - (2,469 ) Net loss - - - - - - (81,035,576 ) (81,035,576 ) Balance, December 31, 2020 3,250 $ 3 65,743,170 $ 65,743 $ 337,758,007 $ - $ (294,192,097 ) $ 43,631,656 Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Shares Amount Shares Amount Capital Income/(Loss) 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 Offering, net of underwriting costs and commissions 2,500 3 13,993,778 13,994 30,506,838 - - 30,520,835 Issuance of common stock from employee stock purchase plan - - 80,542 81 131,814 - - 131,895 Conversion of common stock to series A convertible preferred stock 1,262 1 (1,262,000 ) (1,262 ) 1,261 - - - Proceeds from October Offering, net of underwriting costs and commissions 4,000 4 10,350,000 10,350 33,519,919 - - 33,530,273 Proceeds from ATM Offerings, net of underwriting costs and commissions - - 6,893,888 6,894 22,279,672 - - 22,286,566 Stock-based compensation expense - - - - 5,205,792 - - 5,205,792 Other comprehensive income - - - - - 4,298 - 4,298 Net loss - - - - - - (60,461,243 ) (60,461,243 ) Balance, December 31, 2019 7,762 $ 8 54,710,322 $ 54,711 $ 283,122,894 $ 2,469 $ (213,156,521 ) $ 70,023,561 See accompanying notes to these consolidated financial statements F-6 OVID THERAPEUTICS INC. Consolidated Statements of Cash Flows Year Ended December 31, Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ (81,035,576 ) $ (60,461,243 ) Adjustments to reconcile net loss to cash used in operating activities: Stock-based compensation expense 7,525,354 5,205,792 Depreciation and amortization expense 306,848 255,002 Change in accrued interest and accretion of discount on short-term investments (199,408 ) (29,633 ) Change in operating assets and liabilities: Prepaid expenses and other current assets (724,575 ) 224,458 Security deposit (15,236 ) (13,235 ) Related party receivable 989,383 (531,042 ) Long-term prepaid expenses (117,632 ) 2,438,022 Accounts payable 2,333,716 (653,953 ) Accrued expenses 4,835,607 2,177,844 Deferred revenue 12,382,779 - Related party payable 2,134,826 297,366 Net cash used in operating activities (51,583,914 ) (51,090,622 ) Cash flows from investing activities: Purchases of short-term investments (9,961,092 ) (34,797,004 ) Proceeds from maturities of short-term investments 45,000,000 5,000,000 Purchase of property and equipment (127,240 ) (57,156 ) Software development and other assets (263,440 ) (186,889 ) Net cash provided by (used in) investing activities 34,648,228 (30,041,049 ) Cash flows from financing activities: Proceeds from August 2020 Offering, net of offering expenses 46,731,435 - Proceeds from February and October 2019 Offerings, net of offering expenses - 64,120,736 Proceeds from ATM Offerings, net of offering expenses - 22,286,566 ATM costs (163,250 ) - Proceeds from employee stock purchase plan 203,466 131,895 Proceeds from exercise of options 300,821 - Net cash provided by financing activities 47,072,472 86,539,197 Net increase in cash and cash equivalents 30,136,786 5,407,526 Cash and cash equivalents, at beginning of period 41,897,144 36,489,618 Cash and cash equivalents, at end of period $ 72,033,930 $ 41,897,144 Non-cash investing and financing activities: Software development and other costs in accrued expenses and accounts payable $ — $ 164,922 Offering costs in accrued expenses and accounts payable $ 21,314 $ 69,628 See accompanying notes to these consolidated financial statements F-7 OVID THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 (A) Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“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. F-8 ( B ) 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 expenses during the reporting period. Actual results could differ materially from those estimates. (C) Risks and Uncertainties The Company is subject to risks common to companies in the development stage including, but not limited to, dependency on the clinical and commercial success of its drug candidates, ability to obtain regulatory approval of its drug candidates, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, and significant competition and untested manufacturing capabilities . (D) Deferred Transaction Costs Deferred transaction costs, primarily consisted of direct incremental legal, accounting, and other fees related to the Company’s offering of its capital stock are capitalized as incurred. The deferred transaction costs are offset against proceeds upon the consummation of an offering. (E) Comprehensive Loss 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. (F) Collaboration Arrangement License and Collaboration Agreement with Takeda Pharmaceutical Company Limited 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. When Takeda incurs the majority of the costs and Ovid transfers a payment to Takeda (to equalize the costs), Ovid records the participation in Takeda’s expenses as research and development costs in its statement of operations, as Ovid and Takeda are sharing in the research and development activities and this participation represents Ovid’s share of the research and development costs in the specific period. (G) Cash and Cash Equivalents The Company’s cash and cash equivalents consist of cash held in checking accounts and money market funds. The Company considers all highly liquid investments with an original maturity date of three months or less to be cash and cash equivalents. Accounts held at U.S. financial institutions are insured by the FDIC up to $250,000. Cash balances could exceed insured amounts at any given time. (H) Short-term Investments Short-term investments consist of debt securities with maturities greater than three months from the date of purchase. The Company classifies all of its investments as available-for-sale securities. Debt securities are recorded at fair value with unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Realized gains and losses, amortization and accretion of premiums and discounts are included within net loss. (I) Property and Equipment Property and equipment are stated at cost and depreciated over their estimated useful lives of three years using the straight-line method. Repairs and maintenance costs are expensed. The Company reviews the recoverability of all long-lived assets, including the related useful life, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. (J) Research and Development Expenses The Company expenses the cost of research and development as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when the cost is incurred, in accordance with ASC 730, Research and Development. F-9 (K) Stock-Based Compensation The Company accounts for its stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, which establishes accounting for stock-based awards granted to employees for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company estimates the fair value of all awards granted using the Black-Scholes valuation model. Key inputs and assumptions include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, stock price and exercise price. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense. The Company elected an accounting policy to record forfeitures as they occur. The Company recognizes employee stock-based compensation expense based on the fair value of the award on the date of the grant. The compensation expense is recognized over the vesting period under the straight-line method. The Company accounts for options awards granted to nonemployee consultants and directors in accordance with ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. 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 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 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. The Company’s Level 1 assets consisted of money market funds and short-term investments totaling $70.1 million and $76.2 million as of December 31, 2020 and 2019, respectively. • 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. The Company had no Level 2 assets or liabilities as of December 31, 2020 and 2019. • 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 Company had no Level 3 assets or liabilities as of December 31, 2020 and 2019. The carrying amounts reported in the balance sheets for cash and cash equivalents, related-party receivables, other current assets, accounts payable, accrued expenses, and current related-party payables approximate their fair value based on the short-term maturity of these instruments. (M) Income Taxes The Company accounts for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as for net operating loss carryforwards and research and development credit. Valuation allowances are provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of a change in the tax laws is recorded in the period in which the law is enacted. (N) Net Loss Per Common 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, stock 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. F-10 The following potentially dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as they would be anti-dilutive: For the Year Ended December 31, 2020 2019 Stock options to purchase common stock 10,403,420 7,405,295 Series A convertible preferred stock 3,250 7,762 (O) Segment Data The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. (P) Retirement Plan The Company maintains a 401(k)-retirement plan for its employees that is intended to qualify under Sections 401(a) and 501(a) of the U.S. Internal Revenue Code of 1986, as amended (“Code”). The Company provides all active employees with a 100% matching contribution equal to 3% of an employee’s eligible compensation deferred and 50% matching contributions on employee contributions that are between 3% and 5% of an employee’s eligible compensation deferred. These safe harbor contributions vest immediately. For the years ended December 31, 2020 and 2019 the Company contributed $321,000 and $285,000, respectively. (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 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 December 31, 2020, the Company did not hold any debt securities with F-11 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. 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 consolidated 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 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 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 December 31, 2020 and December 31, 2019: December 31, 2020 Amortized Gross unrealized Gross unrealized Fair cost holding gains holding losses value Cash $ 1,977,320 $ - $ - $ 1,977,320 Money market funds 70,056,610 - - 70,056,610 Total cash and cash equivalents $ 72,033,930 $ - $ - $ 72,033,930 U.S. treasury notes $ - $ - $ - - Total short-term investments $ - $ - $ - $ - F-12 December 31, 2019 Amortized Gross unrealized Gross unrealized Fair cost holding gains holding losses value Cash $ 501,537 $ - $ - $ 501,537 Money market funds 41,395,607 - - 41,395,607 Total cash and cash equivalents $ 41,897,144 $ - $ - $ 41,897,144 U.S. treasury notes $ 34,839,500 $ 2,469 $ - 34,841,969 Total short-term investments $ 34,839,500 $ 2,469 $ - $ 34,841,969 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 Property and equipment is summarized as follows: December 31, December 31, 2020 2019 Furniture and equipment $ 320,957 $ 193,717 Less accumulated depreciation (185,337 ) (125,354 ) Total property, plant and equipment, net $ 135,620 $ 68,363 Depreciation expense was $60,000 and $39,000 for the years ended December 31, 2020 and 2019 respectively. Intangible assets, net of accumulated amortization, were $319,000 and $467,000 as of December 31, 2020 and December 31, 2019, respectively, and are included in other assets. Amortization expense was $247,000 and $216,000 for the years ended December 31, 2020 and 2019, respectively. NOTE 5 – ACCRUED EXPENSES Accrued expenses consist of the following: December 31, December 31, 2020 2019 Clinical trials accrual $ 4,175,497 $ 3,235,527 Payroll and bonus accrual 3,845,441 2,728,495 Professional fees accrual 3,846,211 1,070,589 Other 165,536 232,095 Total $ 12,032,685 $ 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. F-13 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. 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 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 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 December 31, 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 types of stock-based awards, including share purchase rights amount, terms, and exercisability provisions of grants are determined by the Company’s Board of Directors. The Company's Board of Directors adopted, and the Company's stockholders approved the 2017 equity incentive plan (“2017 Plan”), which became effective immediately prior to the execution of the underwriting agreement related to the IPO on May 4, 2017. 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 F-14 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, 2019, an additional 1,232,705 shares were reserved for issuance under the 2017 Plan. 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. The initial reserve of shares of common stock that may be issued under the 2017 ESPP was 279,069 shares. On September 20, 2017, the Company’s Compensation Committee approved an offering period under the 2017 ESPP, which began 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 years ended December 31, 2020 and 2019, 105,464 and 80,542 shares were purchased under the ESPP and the Company recorded expense of $152,973 and $109,319, 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 capital 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, 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. 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 vesting terms, with vesting occurring on the date the performance condition is achieved and expire in accordance to the specific terms of the agreement. 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 . F-15 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 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 is 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 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, 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, 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: For the Year Ended December 31, 2020 2019 Research and development $ 2,779,758 $ 2,391,909 General and administrative 4,745,596 2,813,883 Total $ 7,525,354 $ 5,205,792 For the Year Ended December 31, 2020 2019 Stock options $ 7,372,381 $ 5,096,473 Employee Stock Purchase Plan 152,973 109,319 Total $ 7,525,354 $ 5,205,792 The fair value of employee options granted during the years ended December 31, 2020 and 2019, respectively, was estimated by utilizing the following assumptions: For the Year Ended December 31, 2020 2019 Weighted Average Weighted Average Volatility 81.48 % 81.87 % Expected term in years 5.88 6.07 Dividend rate 0.00 % 0.00 % Risk-free interest rate 0.58 % 2.04 % Fair value of option on grant date $ 2.62 $ 2.26 F-16 The fair value of nonemployee options granted and remeasured during the years ended December 31, 2020 and 2019, respectively, was estimated by utilizing the following assumptions: For the Year Ended December 31, 2020 2019 Weighted Average Weighted Average Volatility 74.37 % 74.56 % Expected term in years 5.64 5.30 Dividend rate 0.00 % 0.00 % Risk-free interest rate 2.32 % 2.37 % Fair value of option on grant date $ 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 at December 31, 2018 4,714,383 $ 8.10 7.89 $ 153,485 Vested and exercisable at December 31, 2018 2,337,931 $ 7.88 7.20 $ 153,485 Granted 3,547,513 2.93 9.56 Exercised - - Forfeited (856,601 ) 6.43 Options Outstanding December 31, 2019 7,405,295 $ 5.82 8.01 $ 4,488,930 Vested and exercisable at December 31, 2019 3,296,547 $ 7.93 6.53 $ 356,443 Granted 3,583,160 3.93 9.68 Exercised (165,384 ) 1.82 - Forfeited (415,526 ) 5.00 Options Outstanding December 31, 2020 10,403,420 $ 5.26 7.59 $ 652,438 Vested and exercisable at December 31, 2020 5,395,658 $ 6.45 6.13 $ 445,599 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, 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 $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. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. The Company has not completed a Section 382 analysis to determine if a change in ownership has occurred. Until an analysis is completed, there can be no assurance that the existing net operating loss carry-forwards or credits are not subject to significant limitation. The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies related to the tax benefit. For the years ended December 31, 2020 and 2019, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company has not yet conducted a study of research and development credit carryforwards. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position. 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 tax F-17 expense. 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 examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows: December 31, 2020 2019 Deferred tax assets/liabilities: Net operating loss carryovers $ 74,064,673 $ 57,288,334 Research and development tax credits 5,458,004 3,351,315 Share-based compensation 4,978,370 6,606,889 Accrued compensation 514,316 898,067 Depreciation (29,760 ) (22,026 ) Charitable contributions 87,120 132,072 Intangible assets 4,742,031 8,208,519 Total gross deferred tax assets/liabilities 89,814,754 76,463,170 Valuation allowance (89,814,754 ) (76,463,170 ) Net deferred tax assets (liabilities) $ - $ - A reconciliation of the statutory U.S. Federal rate to the Company’s effective tax rate is as follows: December 31, 2020 2019 Federal income tax benefit at statutory rate (21.00 ) (21.00 ) State income tax, net of federal benefit ( 1) 6.15 (13.80 ) Permanent items 0.75 0.50 Change in valuation allowance 16.72 37.14 Research and development tax credits (2.64 ) (2.67 ) Other 0.02 (0.17 ) Effective income tax (benefit) expense rate 0 % 0 % (1) Inclusive of $5.8 million deferred tax benefit due to change in apportionment NOTE 9 – COMMITMENTS 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. On May 10, 2019, the parties amended the license agreement. Pursuant to the Lundbeck license agreement, as amended, 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. As of December 31, 2020, none of these contingent payments were considered probable. In December 2016, the Company entered into a license agreement with Northwestern University, or Northwestern, pursuant to which Northwestern granted us an exclusive, worldwide license to patent rights in certain inventions, or 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 F-18 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 December 31, 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, each of our named executive officers is 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 named executive officer’s delivery to the Company of a satisfactory release of claims, and subject to the named executive officer’s compliance with non-competition and non-solicitation restrictive covenants for two years following the termination date. 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 Company had a license to the Patent Application, and that a further breach would occur if the Company makes any use of information obtained under the CDA in connection with its development program arising from the rights granted under the license agreement. Catalyst has asserted that the combined conduct of Northwestern and the Company gives rise to various claims, including breach of contract, fraud, and tortious interference. 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 (the “Settlement Agreement”), pursuant to which Catalyst released the Company from any and all claims, known or unknown, arising from or related to the dispute between Catalyst and Northwestern, the license agreement, and/or the claims that Catalyst asserted against the Company in the June 25, 2018 letter. Under the Settlement Agreement the Company retains all rights and privileges previously granted to the Company under the Northwestern license agreement. F-19 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. F-20 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 territories, 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 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 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 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. 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 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 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 Board and $150,000 per year for other advisory and consulting 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 milestone, subject to Dr. F-21 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. E ither Dr. During or the Company may terminate the consulting arrangements pursuant to the Consulting Agreement in accordance with its terms, at any time and for any reason, upon thirty (30) days written notice to the other party. Upon such termination, the Company will have no further obligations to Dr. During, including any obligation to pay further 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, a 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, a 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. 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 Equity Awards 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. F-22