What changed in this filing

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Item 1. Financial Statements

2021-05-13 compared with 2020-11-13 · 190 added, 256 removed, 288 unchanged (61% of the section changed)

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Condensed Consolidated Balance Sheets

September 30,

Current assets:

Cash and cash equivalents

Short-term investments

Related party receivable

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10,000,000 shares authorized;

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

Series A convertible preferred stock, 10,000 shares designated, 1,250 and 3,250 shares issued and outstanding at March 31, 2021 and December 31, 2020 respectively

Common stock, $0.001 par value;

125,000,000 shares authorized;

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

67,787,826 and 65,743,170 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in-capital

Accumulated other comprehensive gain

Accumulated other comprehensive income

Accumulated deficit

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Condensed Consolidated Statements of Operations

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

License revenue

For The Three Months Ended March 31,

License and other revenue

License revenue - related party

Total revenue

Operating expenses:

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Total operating expenses

Loss from operations

Other (expense) income, net

Net loss attributable to common stockholders

Net loss per share attributable to common stockholders, basic and diluted

Weighted-average common shares outstanding basic and diluted

Income (loss) from operations

Other (expenses) income, net

Income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Net income (loss) per share, basic

Net income (loss) per share, diluted

Weighted-average common shares outstanding, basic

Weighted-average common shares outstanding, diluted

See accompanying notes to these unaudited condensed consolidated financial statements

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Comprehensive Loss

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Other comprehensive income (loss):

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

Comprehensive loss

Condensed Consolidated Statements of Comprehensive Income (Loss)

For The Three Months Ended March 31,

Net income (loss)

Other comprehensive income:

Unrealized gain on available-for-sale securities

Comprehensive income (loss)

See accompanying notes to these unaudited condensed consolidated financial statements

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Balance, December 31, 2020

ATM offering costs

Stock-based compensation expense

Issuance of common stock from employee stock purchase plan

Other comprehensive income

Balance, March 31, 2020

ATM offering costs

Conversion of series A convertible preferred stock to common stock

Stock-based compensation expense

Issuance of common stock from exercise of stock options

Other comprehensive loss

Balance, June 30, 2020

Stock-based compensation expense

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

Issuance of common stock from employee stock purchase plan

Issuance of common stock from exercise of stock options

Balance, September 30, 2020

Preferred Stock

Conversion of series A convertible preferred stock to common stock

Balance, March 31, 2021

Series A Convertible Preferred Stock

Comprehensive

Balance, December 31, 2019

Proceeds from February 2019 Offering, net of underwriting costs and commissions

ATM offering costs

Stock-based compensation expense

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Balance, March 31, 2020

Underwriting costs related to February 2019 Offering

Stock-based compensation expense

Other comprehensive loss

Balance, June 30, 2019

Stock-based compensation expense

Issuance of common stock from employee stock purchase plan

Conversion of common stock to Series A convertible preferred stock

Balance, September 30, 2019

See accompanying notes to these unaudited condensed consolidated financial statements

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Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to cash used in operating activities:

Stock-based compensation expense

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Related party payable

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

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Software development and other assets

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from August 2020 Offering, net of offering expenses

Proceeds from February 2019 Offering, net of offering expenses

ATM offering costs

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Net cash provided by financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, at beginning of period

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Non-cash investing and financing activities:

Software development and other costs in accrued expenses and accounts payable

Purchase of property and equipment in accounts payable

Offering costs in accrued expenses and accounts payable

See accompanying notes to these unaudited condensed consolidated financial statements

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

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

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

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

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

As of March 31, 2021, the Company had approximately $233.1 million in cash and cash equivalents.

Since inception, the Company has generated $221.0 million in revenue, which comprises $25.0 million received pursuant to the Company’s license and collaboration agreement (the “Angelini License Agreement”) with Angelini Pharma Rare Diseases AG (“Angelini”) and a one-time, upfront payment of $196.0 million received pursuant to the Company’s royalty, license and termination agreement (the “Takeda License and Termination Agreement”) with Takeda Pharmaceutical Company Limited (“Takeda”).

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

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

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

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

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

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

These mitigating actions may not be successful in alleviating the substantial doubt about the Company’s ability to continue as a going concern.

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

If the Company is unable to raise capital, it may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain drug candidates that the Company might otherwise seek to develop or commercialize independently.

The Company has an accumulated deficit of $118.2 million as of March 31, 2021 , working capital of $220.3 million and had cash provided by operating activities of $160.9 million for the three months ended March 31, 2021 .

Although the Company recorded net income of $176.0 million during the three months ended March 31, 2021, the Company expects to incur losses in subsequent periods for at least the next several years and is highly dependent on its ability to find additional sources of funding through either equity offerings, debt financings, collaborations, strategic alliances, licensing agreements or a combination of any such transactions.

Management believes that the Company’s existing cash and cash equivalents as of March 31, 2021 will be sufficient to fund its current operating plans through at least the next 12 months from the date of filing of the Company’s Quarterly Report on Form 10-Q.

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

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

The Company may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain drug candidates that the Company might otherwise seek to develop or commercialize independently.

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

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

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

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:

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

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

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

pharmaceutical product development and the inherent uncertainty of clinical success;

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Securities and Exchange Commission (“SEC”) on March 15, 2021.

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

There have been no material changes to the significant accounting policies during the period ended March 31, 2021, except for items mentioned below.

(A) Unaudited Interim Condensed Consolidated Financial Statements

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

The accompanying unaudited

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

The interim condensed consolidated balance sheet at March 31, 2021, the condensed consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for the three months ended March 31, 2021 and 2020 are unaudited.

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

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

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

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

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

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

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

These condensed consolidated financial statements have been prepared on the same basis as

the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information.

The results of operations for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period.

The balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date.

These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K.

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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 $231.2 million and $70.1 million as of March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020.

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 March 31, 2021 and December 31, 2020.

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

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

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

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

License Revenue:

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

The 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.

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

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

( F) Recent Accounting Pronouncements

(F) Net Income (Loss) Per Share

Net income (loss), basic per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding.

The Company applies the two-class method to allocate earnings between common stock and participating securities.

Net income (loss), diluted per share attributable to common stockholders adjusts the basic earnings per share attributable to common stockholders and the weighted-average number of shares of common stock outstanding for the potential dilutive impact of stock options, using the treasury-stock method.

( G) Recent Accounting Pronouncements

Recent accounting standards which have been adopted

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

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

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

As of March 31, 2021, the Company did not hold any debt securities with credit losses, nor does it have any trade receivables.

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

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

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Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance.

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

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).

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

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

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.

NOTE 3 – CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

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

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

September 30, 2020

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 March 31, 2021 and December 31, 2020:

March 31, 2021

Gross unrealized

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holding losses

Money market funds (a)

Money market funds

Total cash and cash equivalents

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

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

December 31, 2020

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holding losses

Money market funds (a)

Money market funds

Total cash and cash equivalents

treasury notes (a)

Total short-term investments

(a) As of December 31, 2019, the Company's Level 1 assets consisted of money market funds and U.S.

treasury notes totaling $76.2 million.

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

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

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

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

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

The Company did not hold any securities that were in an unrealized loss position for more than 12 months as of March 31, 2021 and December 31, 2020 .

There were no material realized gains or losses on available-for-sale securities during the three months ended March 31, 2021 and 2020 .

NOTE 4 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

Property and equipment is summarized as follows:

September 30,

Furniture and equipment

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Total property and equipment, net

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

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

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

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

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

Depreciation expense was $19,000 and $12,000 for the three months ended March 31, 2021 and 2020, respectively.

Intangible assets, net of accumulated amortization was $263,000 and $319,000 as of March 31, 2021 and December 31,2020, respectively, and are included in other assets.

Amortization expense was $56,000 and $55,000 for the three months ended March 31, 2021 and 2020, respectively.

NOTE 5 – ACCRUED EXPENSES

Accrued expenses consist of the following:

September 30,

Clinical trials accrual

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

In June 2018, the Company entered into a sales agreement (the “ATM agreement”) with Cowen and Company, LLC (“Cowen”) under which the Company may offer and sell in “at the market offerings,” from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through Cowen acting as sales agent.

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

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

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

In November 2020, the Company entered into a sales agreement (the “2020 ATM agreement”) with Cowen and Company, LLC (“Cowen”), under which the Company may offer and sell in “at the market offerings,” from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $75.0 million through Cowen acting as sales agent.

As of March 31, 2021, the Company has not sold any shares of its common stock under the 2020 ATM agreement.

There were 1,250 and 3,250 shares of Series A Preferred Stock outstanding as of March 31, 2021 and December 31, 2020, respectively.

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

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

In March 2021, certain of the Company’s stockholders elected to convert an aggregate of 2,000 shares of Series A Preferred Stock owned by such holders into an aggregate of 2,000,000 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”).

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

In October and November 2019, the Company sold 10,350,000 shares of its common stock, which included the full exercise of the underwriters’ option to purchase additional shares, and 4,000 shares of Series A Preferred Stock at a public offering price of $2.50 and $2,500 per share, respectively, for net proceeds of $33.5 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

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

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

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

In February 2019, the Company sold 13,993,778 shares of its common stock and 2,500 shares of Series A Preferred Stock at a public offering price of $2.00 and $2,000 per share, respectively, for net proceeds of $30.5 million after deducting underwriting discounts and commission and other offering expenses payable by the Company (the “February 2019 Offering”).

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

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

Holders of Series A preferred stock are 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 (other than dividends in the form of the issuance of common stock) actually paid on shares of common stock.

Through March 31, 2021 , the Company has not declared any dividends.

NOTE 7 – STOCK-BASED COMPENSATION

On August 29, 2014, the Company’s Board of Directors adopted and approved the 2014 Equity Incentive Plan (the “2014 Plan”), which authorized the Company to grant shares of common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units.

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

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

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

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

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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.

Upon the adoption of the 2017 Plan, no further awards will be granted under the Company’s prior 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, 2021 and January 1, 2020, respectively, an additional 3,287,158 and 2,735,516 shares were reserved for issuance under the 2017 Plan.

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

As of March 31, 2021, there were 4,443,769 shares of the Company’s common stock reserved and available for issuance under the 2017 Plan.

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

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

On March 20, 2017, the

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

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

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

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

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

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

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

During the three months ended March 31, 2021 and 2020, 34,256 and 43,743 shares were purchased under the ESPP and the Company recorded expense of $19,000 and $20,000, respectively.

The number of shares of common stock reserved for issuance under the 2017 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2018 and continuing through and including January 1, 2027, by the lesser of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (ii) 550,000 shares or (iii) such lesser number of shares determined by our Board.

The Board acted prior to each of January 1, 2020 and January 1, 2021 to provide that there be no increase in the number of shares reserved for issuance under the 2017 ESPP on either such date.

As of March 31, 2021, there were 519,296 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 prior plan and the 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.

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

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

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

At March 31, 2021, there were 50,000 performance-based options outstanding and unvested that include options to be granted upon the achievement of certain research and development milestones.

The fair value of options granted during the three months ended March 31, 2021 and 2020 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.

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

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

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

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

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

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

During (see Note 11), respectively.

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

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

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

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

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

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

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

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

The Company granted zero and 10,000 stock options to nonemployee consultants for services rendered during the three months ended March 31, 2021 and 2020, respectively.

There were 27,188 and 133,946 unvested nonemployee options outstanding as of March 31, 2021 and 2020, respectively.

Total expense recognized related to the nonemployee stock options for the three months ended March 31, 2021 and 2020, was $35,000 and $36,000, respectively.

Total unrecognized compensation expenses related to the nonemployee stock options was $152,000 as of March 31, 2021.

The Company did not recognize any expense for nonemployee performance-based option awards during the three months ended March 31, 2021 and 2020.

The Company granted 643,600 and 520,300 stock options to employees during the three months ended March 31, 2021 and 2020 respectively.

There were 5,156,000 and 4,112,758 unvested employee options outstanding as of March 31, 2021, and 2020, respectively.

Total expense recognized related to the employee stock options for the three months ended March 31, 2021 and 2020 was $1.3 million and $1.2 million, respectively.

Total unrecognized compensation expense related to employee stock options was $12.2 million as of March 31, 2021.

During the three months ended March 31, 2021 and 2020, the Company recognized zero and $38,000, respectively, in expenses for employee performance-based option awards.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Research and development

General and administrative

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Stock options

Employee Stock Purchase Plan

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

Three Months Ended September 30,

Nine Months Ended September 30,

The fair value of employee options granted during the three months ended March 31, 2021 and 2020 was estimated by utilizing the following assumptions:

Three Months Ended March 31,

Expected term in years

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Fair value of option on grant date

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

Three Months Ended September 30,

Nine Months Ended September 30,

The fair value of nonemployee options granted during the three months ended March 31, 2021 and 2020 was estimated by utilizing the following assumptions:

Three Months Ended March 31,

Expected term in years

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Forfeited or expired

Options outstanding September 30, 2020

Vested and exercisable at September 30, 2020

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

Options outstanding March 31, 2021

Vested and exercisable at March 31, 2021

At March 31, 2021 there was approximately $12.4 million of unamortized share–based compensation expense related to employee and nonemployee grants, which is expected to be recognized over a remaining average vesting period of 2.99 years.

NOTE 8 – INCOME TAXES

The Company did not record a federal or state income tax provision for the periods presented as it has incurred net losses since inception.

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

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

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

NOTE 9 – COMMIT MENTS AND CONTINGENCIES

The Company’s interim income tax provision consists of U.S.

federal and state income taxes based on the estimated annual effective tax rate that the Company expects for the full year together with the tax effect of discrete items.

Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary.

As of March 31, 2021, the estimated annual effective tax rate for 2021, exclusive of discrete items, is approximately 0.28% of projected pre-tax income.

The estimated annual tax expense consists of a provision for state and local income taxes.

For the three months ended March 31, 2021, the Company recorded a state income tax expense of $500,000 on a pre-tax income of $176.5 million.

The Company did not record a U.S.

federal income tax provision due to available net operating losses and research and development credit carryforwards.

For the three months ended March 31, 2020, the Company did not record a U.S.

federal or state income tax provision due to current and historical net operating losses.

In assessing the realizability of deferred tax assets, the Company’s management evaluates whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized.

Management assesses all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized.

This evidence includes, but is not limited to, prior earnings history, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income.

Significant weight is given to positive and negative evidence that is objectively verifiable.

Based on these factors, including cumulative losses in recent years, the Company continues to maintain a full valuation allowance against its net deferred tax assets as of March 31, 2021.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

License Agreements

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Pursuant to the amended Lundbeck license agreement, the Company agreed to make milestone payments totaling up to $189.0 million upon the achievement of certain development, regulatory and sales milestones.

The first payment of $1.0 million is due upon the successful completion of the first Phase 3 trial for a product in which OV101 is an active ingredient.

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.

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

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

As of March 31, 2021, none of these contingent payments were considered probable.

Contingencies

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Under the terms of their respective employment agreements, certain of our executive officers are eligible to receive severance payments and benefits upon a termination without “cause” or due to “permanent disability,” or upon “resignation for good reason,” contingent upon the executive officer’s delivery to the Company of a satisfactory release of claims, and subject to the executive officer’s compliance with non-competition and non-solicitation restrictive covenants.

Pursuant to the Northwestern agreement, Northwestern granted the Company an exclusive license to certain patent rights and know-how, including a patent application covering a specified composition of matter (the “Patent Application”).

Northwestern previously entered into a license agreement with Catalyst Pharmaceuticals, Inc.

(“Catalyst”), dated August 27, 2009, pursuant to which Northwestern granted Catalyst rights under certain intellectual property rights covering a different composition of matter (the “Catalyst License”).

In addition, the Company is a party to a confidential disclosure agreement with Catalyst, dated September 16, 2016 (the “CDA”).

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

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

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

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

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

On May 20, 2019, the Company entered into a Settlement Agreement with Catalyst, pursuant to which Catalyst released the Company from any and all claims, known or unknown, arising from or related to the dispute between Catalyst and Northwestern, the License Agreement, and/or th e claims that Catalyst asserted against the Company in the June 25, 2018 letter.

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

NOTE 10 – COLLABORATION AGREEMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On March 29, 2021, the Company received a notice of termination of the Angelini License Agreement.

Subsequently, Angelini and the Company mutually agreed to waive the six month termination notice provisions and the Angelini License Agreement terminated effective March 31, 2021.

The Company has been released from its performance obligations and will not be entitled to any future milestone payments under the Angelini License Agreement.

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

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

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

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

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

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

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

(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 represented a potential payment to a customer and was 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.

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

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

The Company determined the transaction price is equal to the upfront fee of $20.0 million.

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

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

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

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

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

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

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

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

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

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

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

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

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

Pursuant to the Angelini License Agreement and during the year ended December 31, 2020, Angelini made an upfront payment to the Company of $20.0 million.

Upon the transfer of the specified amount of compound and related information and acceptance by Angelini, Angelini paid the Company an additional $5.0 million.

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

During the three months ended March 31, 2021 and effective upon termination of the Angelini License Agreement, the Company recognized $12.4 million of revenue consisting of $5.4 million of license revenue related to ongoing trials and the $7.0 million related to the potential 35% funding of the cost for Angelini future trials.

Takeda Collaboration

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

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

Upon the first patient enrollment in the first Phase 3 trial for the first of the initial indications the Company and Takeda are focusing on in the Takeda collaboration, the Company is obligated to issue to Takeda the number of unregistered shares of the Company’s common stock equal to the lesser of (a) 8% of the Company outstanding capital stock (including preferred stock on an as-converted basis) on the issuance date or (b) $50.0 million divided by the applicable share price.

The remaining potential global commercial and regulatory milestone payments equal approximately $35.0 million and can be satisfied in cash or unregistered shares of the Company’s common stock at its election, unless certain events occur.

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

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

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

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

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

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

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

Either party may terminate the Takeda collaboration because of the other party’s uncured material breach or insolvency, for safety reasons, or, after completion of the first proof of mechanism clinical trial, for convenience.

Takeda may terminate the Takeda collaboration for the Company’s (or the Company’s sublicensee’s) challenge to the patents licensed under the Takeda collaboration.

If the collaboration is terminated by Takeda for material breach by the Company, bankruptcy or patent challenge or by the Company for convenience or safety reasons, the Company’s rights to the products will cease, the Company will transition all activities related to the products to Takeda, and the Company will grant Takeda an exclusive, royalty-bearing license under certain patents and other intellectual property controlled by the Company to commercialize OV935 and products containing OV935 for the treatment of certain rare neurological disorders.

If the collaboration is terminated by the Company for Takeda’s material breach or bankruptcy or by Takeda for convenience or safety reasons, Takeda’s rights to the products will cease, Takeda will transition all activities related to the products to the Company, and Takeda will grant the Company an exclusive, royalty-bearing license under certain patents and other intellectual property controlled by Takeda to commercialize OV935 and products containing OV935 for the treatment of certain rare neurological disorders.

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

In March 2021, the Company entered into the Takeda License and Termination Agreement with Takeda, pursuant to which Takeda secured rights to the Company’s 50% global share in soticlestat, which the Company had originally licensed from Takeda, and the Company granted to Takeda an exclusive worldwide license under the Company’s relevant intellectual property rights 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 are owned by Takeda or exclusively licensed to Takeda by the Company.

Takeda assumed all responsibility for, and costs of, both development and commercialization of soticlestat , 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.

On March 29, 2021 upon the closing of the Takeda License and Termination Agreement, the Company received an upfront payment of $196.0 million and will be eligible to receive up to an additional $660.0 million upon achieving development, regulatory and sales milestones.

In addition, the Company will be entitled to receive tiered royalties beginning in the low double-digits, and up to 20% on sales of soticlestat if it achieves regulatory approval .

Royalties are payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale.

The Company identified the following material promises under the Takeda License and Termination Agreement:

(1) no later than the second business day prior to the closing of the Takeda License and Termination Agreement (the “Closing Date”), the Company and Takeda were required to agree on an estimate of the development expenses that accrued, or would accrue, under the original collaboration agreement as of March 31, 2021;

(2) on the Closing Date, the Company was required to (i) provide and transfer to Takeda the materials, information and data relating to the OV935 program, including clinical trial data and results, as further set forth in the Takeda License and Termination Agreement, (ii) assign to Takeda certain agreements applicable to the OV935 program , and (iii) assign to Takeda all of its right, title and interest in, to and under all intellectual property rights developed or created pursuant to the original collaboration agreement and owned jointly by the Company and Takeda as of the Closing Date;

(3) within 45 days after March 31, 2021, the Company and Takeda are required to provide a written report to the finance officer designated by the other party setting forth a final total of the development expenses that accrued as of March 31, 2021 and, within 10 business days after receipt of such report, the finance officers shall agree on whether a net settlement payment is due from Takeda to the Company or from the Company to Takeda;

and (4) within 75 days after the Closing Date, to the extent not provided on the Closing Date, Ovid shall provide to Takeda (i) any materials, information and data relating to the OV935 program, including clinical trial data and results, as further set forth in the Takeda License and Termination Agreement , (ii) other documents (including all expired agreements and related data developed thereunder) to the extent relating to the OV935 program that are necessary for the exploitation, development, commercialization and manufacture of OV935, as further set forth in the Takeda License and Termination Agreement and (iii) any tangible embodiments of the intellectual property rights controlled by Ovid that are reasonably necessary for, used in or held for use in Takeda’s exploitation of the OV935 program.

The Company determined the transaction price is equal to the upfront fee of $196.0 million and is associated with all four performance obligations identified above.

It is noted that the incremental effort associated with performance obligations three and four is negligible and not material in the context of the Takeda License and Termination Agreement since all of the information is related to the collaboration period for which the Company already has the information readily available.

Therefore, since they are not material in the context of the Takeda License and Termination Agreement , the full upfront fee will be allocated to the two performance obligations satisfied at closing.

During the three months ended March 31, 2021, the Company recognized a credit in research and development expenses of $ 2.6 million and expenses of $0.1 million in general and administrative representing costs to be reimbursed to the Company from Takeda .

During the three months ended March 31, 2020, the Company recognized a credit in research and development expenses of $0.4 representing costs to be reimbursed to the Company from Takeda.

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.

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 cons ulting services.

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

During’s continued service through such vesting date.

In the event such option does not vest by December 31, 2020, the stock option will expire.

Provided further, in recognition of Dr.

During’s service on the Scientific Advisory Board , Dr.

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

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

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

During, including any obligation to pay furth er consulting fees.

In February 2019, the Company issued and sold an aggregate of 6,325,000 shares of common stock and 2,500 shares of Series A Preferred Stock to entities affiliated with Takeda, its collaboration partner and an existing stockholder, entities affiliated with Biotechnology Value Fund, L.P., an existing stockholder, and Dr.

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

In October and November 2019, the Company issued and sold an aggregate of 4,058,000 shares of common stock and 2,000 shares of Series A Preferred Stock to entities affiliated with Takeda, its collaboration partner and an existing stockholder, entities affiliated with Biotechnology Value Fund, L.P., an existing stockholder, and Dr.

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 March 2021, the Company entered into the Takeda License and Termination Agreement with Takeda.

For a description of the Takeda License and Termination Agreement, see Note 10.

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

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

NOTE 12 – NET LOSS PER SHARE

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding during the period.

For all periods presented, the common shares underlying the options have been excluded from the calculation because their effect would be anti-dilutive.

Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per common share are the same.

Under the terms of the Series A Preferred Stock issued in 2019, Preferred stockholders do not share in losses of the Company and have no obligation to fund losses or transfer assets.

Since there is a loss, diluted EPS should be computed in the same manner as basic EPS and because no potential common shares shall be included in the computation of any diluted per-share amounts when a loss exists, the Series A Preferred Stock should be excluded from the computation of basic and diluted EPS.

NOTE 12 – NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated based upon the weighted-average number of common shares outstanding during the period, excluding outstanding stock options that have been issued but are not yet vested.

Diluted net income (loss) per share is calculated based upon the weighted-average number of common shares outstanding during the period plus the dilutive impact of weighted-average common equivalent shares outstanding during the period.

The potentially dilutive shares of common stock resulting from the assumed exercise of outstanding stock options were determined under the treasury stock method.

The Basic and diluted net income (loss) per common share is presented in conformity with the two-class method required for participating securities and multiple classes of shares.

The Company considers the preferred shares to be participating securities.

For any period in which the Company records net income, undistributed earnings allocated to the participating securities are subtracted from net income in determining net income attributable to common stockholders.

The undistributed earnings have been allocated based on the participation rights of preferred shares and common shares as if the earnings for the year have been distributed.

For periods in which the Company recognizes a net loss, undistributed losses are allocated only to common shares as the participating securities do not contractually participate in the Company’s losses.

Basic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

Participating securities are excluded from basic weighted-average common shares outstanding.

The following table summarizes the calculation of basic and diluted net income (loss) per share:

Net income (loss)

Net income attributable to participating securities

Net income (loss) attributable to common stockholders

Weighted-average common shares outstanding, basic

Dilutive effect of outstanding stock options

Weighted-average common shares outstanding, diluted

Net income (loss) per share, basic

Net income (loss) per share, diluted

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

September 30,

Stock options to purchase common stock

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

What changed 10-Q

Item 1. Financial Statements