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Item 2. Management’s Discussion and Analysis

2021-05-13 compared with 2020-11-13 · 83 added, 260 removed, 114 unchanged (75% of the section changed)

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Such factors may be amplified by the ongoing COVID-19 pandemic and its potential impact on our business and the global economy.

We are a late-stage clinical biopharmaceutical company focused exclusively on developing impactful medicines for patients and families living with rare neurological disorders.

We believe these disorders represent an attractive area for drug development as the understanding of the underlying biology has grown meaningfully over the last few years and only now is being appreciated by the industry.

Our experienced team began with a vision to integrate the biology and symptomology of rare neurological conditions to employ innovative research and clinical strategies for the development of our drug candidates.

Based on recent scientific advances in genetics and the biological pathways of the brain, we created a proprietary map of disease-relevant pathways and used it to identify and acquire novel compounds for the treatment of rare neurological disorders.

We are also building a deep knowledge of the diseases and the clinically meaningful endpoints required for development of a compound in these rare neurological disorders.

We continue to execute on our strategy by in-licensing and collaborating with leading biopharmaceutical companies and academic institutions.

We have developed a robust pipeline of first-in-class and only-in-class clinical assets with an initial focus on neurodevelopmental disorders and developmental and epileptic encephalopathies, or DEE.

The following table sets forth the status and mechanism of action of our product candidates:

Our most advanced candidate is OV101 (gaboxadol).

We have successfully completed a Phase 2 trial in adults and adolescents with Angelman syndrome, which we refer to as the STARS clinical trial.

As previously announced, the STARS clinical trial achieved its primary endpoint of safety and tolerability and showed a statistically significant improvement in the once-daily OV101 dosing group on the pre-specified physician-rated Clinical Global Impressions-Improvement (“CGI-I”) exploratory endpoint as well as improvements in relevant symptoms such as sleep, motor function and behavior.

Following the STARS study we conducted a post hoc analysis of the STARS data which demonstrated that the study subjects in the once-daily dosing group of OV101 showed (i) improvements on the CGI-I scale increasing over time for the once-daily dosing group versus placebo, and (ii) improvements on the CGI-I scale being more robust in younger patients for the once-daily dosing group.

Following discussion of the STARS clinical trial with the U.S.

Food and Drug Administration (“FDA”) and German regulatory authorities, we designed and initiated a pivotal Phase 3 clinical trial in OV101 for Angelman syndrome in June 2019, which we refer to as the NEPTUNE clinical trial.

NEPTUNE is a 12-week, two-arm, double-blind, placebo-controlled trial originally designed with approximately 60 patients aged 4 to 12 years randomized to either once daily, weight-based dose of OV101 or to placebo.

Five patients aged 2-3 years will also be enrolled for safety assessments only.

The primary endpoint is the change in the overall CGI-I-AS score at 12-weeks versus baseline between the OV101 and placebo groups.

In March 2019, we announced that the first patient had been randomized in NEPTUNE.

Due to mandated closures of clinical sites in the U.S., Europe, Israel and Australia in response to the ongoing COVID-19 pandemic, we had experienced delays in the enrollment of the Phase 3 NEPTUNE trial.

In addition, after scientific advice from the European Committee for Medicinal Products for Human Use (CHMP), we have decided to expand the NEPTUNE trial sample size from 60 to 90 participants.

The expansion of the trial will allow for the inclusion of a responder analysis of the primary endpoint (CGI-I-AS) specifically requested by the European regulatory authorities.

We expect that increasing the trial sample size will enable us to provide additional data to support an EU regulatory filing of OV101 for the treatment of Angelman syndrome.

Enrollment was completed for the NEPTUNE trial in the third quarter of 2020, and we expect to report topline data in the fourth quarter of 2020.

Based on the STARS clinical trial data, we also initiated ELARA, an open-label extension trial which enrolled its first patient in February 2019, and enrollment is ongoing.

In June 2019, the European Commission granted OV101 orphan drug designation for the treatment of Angelman syndrome based on the results of the STARS clinical trial.

We also completed a Phase 2 trial evaluating OV101 in adolescent and young male adults with Fragile X syndrome, which we refer to as the ROCKET clinical trial.

The trial met its primary objective and OV101 appeared to be well tolerated over 12 weeks of treatment with no serious adverse events reported across all three dose cohorts.

OV101 demonstrated a statistically significant effect on secondary behavioral endpoints in the three combined study groups as follows:

26.2% mean improvement in the Aberrant Behavior Checklist for Fragile X ( ABC-C FXS ) total score from baseline to week 12 (p=0.002);

and a 21.6% mean improvement in the Anxiety, Depression and Mood Scale (ADAMS) total score from baseline to week 12 (p=0.004).

Statistically significant improvements were also observed across various ABC-FXS and ADAMS subscales.

In addition, OV101 demonstrated a statistically significant mean reduction of 0.4 in the Clinical Global Impressions Scale-Severity (CGI-S) total score (p=0.002) from baseline to week 12.

These topline results support the continued development of OV101 for the treatment of Fragile X syndrome.

The participating clinicians and caregivers were aware that the trial was non-interventional.

The mean changes from baseline to week 12 were evaluated in the ABC total and subscale scores, the ADAMS subscale scores, and the CGI-S subscale scores as well as the mean change in CGI-I score at week 12.

Other exploratory scales were also assessed.

High variability was seen among caregiver-administered assessments (ABC-c, ADAMS) compared to clinician-assessed scales (CGI-I, CGI-S).

The caregiver-administered assessments showed a placebo response as seen with previous Fragile X syndrome trials.

In these other trials, placebo response rates were highly variable.

Therefore, the SKYROCKET trial data will help inform future study design, including potential endpoints and measures to mitigate placebo response.

In addition, we are in a license and collaboration with Takeda Pharmaceutical Company Limited (“Takeda”) to jointly develop and commercialize TAK-935, which we have licensed from Takeda and refer to as OV935 (soticlestat).

We are initially studying OV935 for those suffering from severe and often intractable forms of DEE, including Dravet syndrome (“DS”), Lennox-Gastaut syndrome (“LGS”) and CDKL5 Deficiency Disorder, or CDD, and Duplication 15q, or Dup15q, syndrome.

Each of these disorders either has limited or no therapeutic options.

We completed a Phase 1b/2a clinical trial of OV935 in a mixed group of adults with DEE and announced the results in December 2018.

The trial achieved its primary endpoint of safety and tolerability, dose proportional reduction in a potential plasma biomarker called 24HC, and a robust reduction in seizure frequency (61% at day 92), with two patients becoming seizure-free at the end of the treatment period.

Following this trial, we reported the initial data from the ENDYMION Phase 2 open-label extension study of OV935 in six study subjects who previously completed our 12-week Phase 1b/2a clinical trial of OV935 in adults with DEE.

The longer-term data from ENDYMION out to 48 weeks suggest increased seizure reduction with prolonged treatment of OV935 and is consistent with the believed mechanism of action of OV935.

Median seizure frequency reductions were 84% following 25 to 36 weeks (n=6) and 90% following 37 to 48 weeks (n=4) of treatment.

In general, a greater reduction in seizure frequency was observed in those with higher baseline seizure frequency.

The FDA has granted orphan drug designation for OV935 for the treatment of DS and LGS.

We and Takeda have completed two additional clinical trials:

ELEKTRA and ARCADE.

ELEKTRA was an international, multi-center, randomized, double-blind, placebo-controlled study designed to evaluate treatment with soticlestat in pediatric patients, aged 2 to 17 years, with highly refractory epileptic seizures associated with DS (convulsive seizures) or LGS (drop seizures).

The study consisted of a four- to six-week screening period to establish baseline seizure frequency, followed by a 20-week double-blind treatment period, including an 8-week dose optimization period and a 12-week maintenance period.

During the 8-week dose optimization period, patients were titrated from 100mg twice daily (BID), to 200mg BID to 300mg BID (mg/kg dosing for <60 kg) of orally administered soticlestat.

A total of 141 patients were enrolled in ELEKTRA and 126 completed the study.

A modified intent-to-treat, or mITT, analysis of 139 patients was performed to evaluate the efficacy endpoints, which includes any patient who enrolled in the study and received at least one dose of study drug.

Patients in the study were allowed to be on one to four concomitant anti-epileptic drugs, or AEDs, with the majority of patients concomitantly treated with at least three AEDs.

The most common AEDs taken by the patients were valproate, clobazam, levetiracetam and topiramate.

Further, all patients who completed ELEKTRA enrolled in the ENDYMION open-label extension study.

On August 25, 2020, we and Takeda announced positive topline results from ELEKTRA and updated findings from ENDYMION.

The ELEKTRA study achieved its primary endpoint with high statistical significance, demonstrating a 27.8% median reduction from baseline in convulsive seizure (DS) and drop seizure (LGS) frequency compared to a 3.1% median increase in patients taking placebo during the 12-week maintenance period (median placebo-adjusted reduction=30.5%;

p=0.0007, based on the efficacy analysis set of 120 patients with seizure data in the maintenance period).

In addition, DS and LGS patients treated with soticlestat demonstrated a 29.8% median reduction in convulsive seizure (DS) and drop seizure (LGS) frequency compared to 0.0% change in median seizure frequency in patients taking placebo during the full 20-week treatment period (titration plus maintenance) of the ELEKTRA study (placebo-adjusted reduction=25.1%;

Soticlestat was generally well-tolerated in the ELEKTRA study and demonstrated a safety profile consistent with those of previous studies, with no new safety signals identified.

All patients who completed the ELEKTRA study elected to enroll into the ENDYMION open-label extension study and findings from ENDYMION were also reported on August 25, 2020.

All patients who completed the ELEKTRA trial elected to roll over into the ENDYMION open-label extension study, and data were supportive of results in the core study.

The data indicate maintenance of effect over six months in those patients originally randomized to soticlestat, and similarly reduced seizure frequency as compared to baseline in those patients previously assigned to the placebo arm.

No new safety signals were identified in ENDYMION.

ARCADE is a Phase 2 open-label, signal-finding pilot study designed to inform the potential for future development of soticlestat in CDD and Dup15q syndrome.

The study enrolled 20 patients, ages 2 to 55 years, wit h refractory epileptic seizures associated with CDD (n=12) or Dup15q (n=8) and consisted of a four- to six-week screening period to establish baseline seizure frequency, followed by a 20-week treatment period, including an eight-week titration/dose optimiz ation period and a 12-week maintenance period.

Patients in the study were allowed to be on one to six concomitant anti-epileptic drugs (AEDs), with the majority of patients concomitantly treated with at least four AEDs, representing a highly refractory pat ient population.

The primary objective of the ARCADE study was to determine percent change from baseline in motor seizure frequency during the 12-week maintenance period.

Further, all patients who completed ARCADE enrolled in the ENDYMION open-label exten sion study.

On September 30, 2020, we announced results from ARCADE and updated findings from ENDYMION.

Together, data from the ARCADE and ENDYMION studies showed seizure frequency reduction over time.

In CDD patients (n=12), median motor seizure frequency reduction was 24% during the 12-week maintenance period in the ARCADE study, increasing to a 50% reduction in the ENDYMION long-term extension study in the five CDD patients who reached nine months of continuous treatment.

In Dup15q patients (n=8), there was an increase in median motor seizure frequency in the ARCADE study during the 12-week maintenance period;

however, longer-term data from the four Dup15q patients who reached nine months of continuous treatment showed a 74% reduction in median motor seizure frequency.

Soticlestat was generally well tolerated in both studies and continues to demonstrate a favorable safety profile.

Additionally, Takeda elected to initiate a placebo-controlled trial of TAK-935 to treat study subjects with chronic complex regional pain syndrome (“CRPS”).

This trial will look at the efficacy, safety and tolerability of TAK-935 as an adjunctive therapy in participants with CRPS.

Pursuant to our agreement with Takeda, we have a one-time right to opt into this program but until we exercise our opt in rights we are not responsible for funding this trial.

We also have early research programs exploring OV329 in infantile spasm/rare epilepsies and OV881 as a potential microRNA gene therapy for the treatment of Angelman syndrome.

Since our inception in April 2014, we have devoted substantially all of our efforts to organizing and planning our business, building our management and technical team, acquiring operating assets, developing our drug candidates and raising capital.

We have generated limited revenue through our Collaboration and License Agreement, or the Angelini License Agreement, with Angelini Pharma Rare Diseases AG, or Angelini, and have funded our business primarily through the sale of our capital stock.

Through September 30, 2020, we have raised net proceeds of $275.4 million from the sale of common stock and convertible preferred stock.

As of September 30, 2020, we had $86.9 million in cash and cash equivalents.

We recorded net losses of $59.0 million and $43.5 million for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, we had an accumulated deficit of approximately $272.2 million.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.

Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities.

We are a biopharmaceutical company focused on developing impactful medicines for patients and families living with rare neurological disorders.

We believe these disorders represent an attractive area for drug development as the understanding of the underlying biology has grown meaningfully over the last few years and today represent a substantial opportunity medically and commercially.

Based on the rapid increase in scientific understanding of the role of genetics and key biological pathways relevant to diseases of the brain, we aim to identify, discover and develop novel compounds for the treatment of rare neurological disorders.

We have built a deep knowledge of such diseases, how to treat them and how to develop the clinically meaningful endpoints required for development of a compound in these disorders.

As a result of this knowledge, we have developed a pipeline of first-in-class compounds and programs and have demonstrated our model by progressing compounds through to late-stage development.

We continue to execute on our strategy to build this pipeline by discovering in-licensing and collaborating with leading biopharmaceutical companies and academic institutions.

Our latest pipeline includes two late-stage programs and several earlier stage programs.

During the three months ended March 31, 2021, we generated $208.4 million of license and other revenue through our Collaboration and License Agreement (“the Angelini License Agreement”) with Angelini Pharma Rare Diseases AG (“Angelini”) and our Royalty, License and Termination agreement (the “Takeda License and Termination Agreement”) with Takeda Pharmaceutical Company Limited (“Takeda”) and have otherwise funded our business primarily through the sale of our capital stock.

Through March 31, 2021, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and our common stock.

As of March 31, 2021, we had $233.1 million in cash and cash equivalents.

We recorded net income of $176.0 million for the three months ended March 31, 2021 and net losses $20.0 million for the three months ended March 31, 2020.

As of March 31, 2021, we had an accumulated deficit of $118.2 million.

Although we recorded net income of $176.0 million during the three months ended March 31, 2021, we expect to incur significant expenses and increasing operating losses for at least the next several years.

Our net losses may fluctuate significantly from period to period, depending on the timing of our planned preclinical studies and clinical trials and expenditures on our other research and development and commercial development activities.

We expect our expenses will increase substantially over time as we:

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Recent Developments

Collaboration and License Agreement with Angelini Pharma Rare Diseases AG

On July 9, 2020, we entered into the Angelini License Agreement with Angelini, pursuant to which we granted to Angelini exclusive rights to develop and commercialize OV101 in the European Economic Area as well as Switzerland, the United Kingdom, Russia and Turkey, or the European Territory.

The licenses granted to Angelini include sublicenses under our existing license agreement with H.

Lundbeck A/S, or Lundbeck, as well as licenses under our 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 we will be responsible for bearing a portion of the costs for such trials.

We will also be responsible, at our 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.

We and Angelini 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, We and Angelini entered into a separate supply agreement, pursuant to which we will be responsible for supply of OV101 to Angelini for development and commercialization in the European Territo ry, through our existing supply relationship with Lundbeck.

The Angelini License Agreement also provides for a transfer, at Angelini’s expense, of the relevant manufacturing technology from us and Lundbeck to Angelini, in order to enable Angelini to assum e responsibility for its own manufacture and supply of OV101 in the future.

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

In addition, Angelini will be required to make milestone payments to us 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 $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.

Angelini also 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 the uncured material breach of the other party or in the case of insolvency.

We 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.

License Agreement with the University of Connecticut

On July 22, 2020, we entered into a license agreement (the “UConn License”) with the University of Connecticut (“UConn”), pursuant to which we licensed from UCONN certain intellectual property to accelerate the development of a next-generation short hairpin RNA (shRNA)-based therapeutic for the treatment of Angelman syndrome and potentially other indications.

We will work closely with UConn’s Stormy J.

Chamberlain, Ph.D., and gain exclusive access to identified genetic sequences for a shRNA-based therapeutic for potential future use alone or in combination with OV101 in Angelman syndrome.

Rare Disease Designation for OV101

On June 19, 2020, we announced that the FDA has granted Rare Pediatric Disease Designation to OV101 for the treatment of Angelman syndrome.

Takeda License and Termination Agreement

In March 2021, we entered into the Takeda License and Termination Agreement with Takeda, pursuant to which Takeda secured rights to our 50% global share in soticlestat, which we had originally licensed from Takeda, and we granted to Takeda an exclusive, worldwide license under our 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.

Notice of Termination of the Angelini License Agreement

We received Notice of Termination dated March 29, 2021 from Angelini, and we and Angelini subsequently agreed that the Angelini License Agreement terminated effective March 31, 2021.

Following termination of the Angelini License Agreement, the Company was released from its performance obligations and will not be entitled to any future milestone payments under the Agreement.

Discontinuation of Development of OV101

In April 2021, we announced that we will discontinue development of OV101 (gaboxadol), a delta (δ)-selective GABAA receptor agonist, in Angelman syndrome, and that we do not plan to initiate further clinical studies of OV101 in Fragile X syndrome.

As a result, we intend to reprioritize our resources to focus on the development of our robust early-stage pipeline, including OV882, a short hairpin RNA therapy targeting UBE3A gene expression in neurons, as a potential treatment for Angelman syndrome.

COVID-19 Update

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

We continue to operate normally with the exception of enabling all of our employees to work productively at home and abiding by travel restrictions issued by federal and local governments.

We continue to operate normally with the exception of enabling all of our employees to work productively at home and abiding by travel restrictions issued by federal, state and local governments.

Our current plans to return to the office remain fluid as federal, state and local guidelines, rules and regulations continue to evolve .

We also continue to expect to report topline data from the pivotal Phase 3 NEPTUNE trial in the fourth quarter of 2020.

Financial Operations Overview

We have generated limited revenue under the Angelini License Agreement and expect to recognize additional revenue as we satisfy our performance obligations .

We have not generated any revenue from commercial drug sales and do not expect to generate any further revenue unless or until we obtain regulatory approval of and commercialize one or more of our current or future drug candidates.

In the future, we may also seek to generate revenue from a combination of research and development payments, license fees and other upfront or milestone payments including under the Angelini License Agreement.

Since inception, we recognized $25.0 million of revenue under the Angelini License Agreement and $196.0 million in connection with the Takeda License and Termination Agreement .

We have not generated any revenue from commercial drug sales and do not expect to generate any revenue from commercial drug sales unless or until we obtain regulatory approval of and commercialize one or more of our current or future drug candidates.

In the future, we may generate revenue from a combination of research and development payments, license fees and other upfront or milestone payments.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts and the development of our product candidates, which include, among other things:

fees related to the acquisition of the rights to OV101 and OV935;

employee-related expenses, including salaries, benefits and stock-based compensation expense;

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Research and development activities are and will continue to be central to our business model.

We expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug candidates through preclinical studies and clinical trials.

We expect our research and development expenses to increase over the next several years as we advance our current and future drug candidates through preclinical studies and clinical trials.

The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming.

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Other general and administrative expenses include costs associated with operating as a public company described below, travel expenses, conferences, professional fees for auditing, tax and legal services and facility-related costs.

We expect that general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates.

Other (Expense) Income, net

Other income consists of interest income earned on our cash and cash equivalents maintained in money market funds and short-term investments that were maintained in U.S.

Other (Expenses) Income, Net

Other (expense) income consists of interest income earned on our cash and cash equivalents maintained in money market funds and prior short-term investments that were maintained in U.S.

treasury notes.

Other expense consists primarily of foreign exchange losses incurred in the ordinary course of business.

Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table summarizes the results of our operations for the periods indicated:

Three Months Ended

September 30,

Three Months Ended March 31,

(in thousands)

License revenue

License and other revenue

License revenue - related party

Total revenue

Operating expenses:

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Total operating expenses

Loss from operations

Income (loss) from operations

Other (expense) income, net

Total revenue was $6.9 million for the three months ended September 30, 2020.

We did not generate any revenue during the three months ended September 30, 2019.

The increase in total revenue was due to $6.9 million of revenue recorded in connection with the Angelini License Agreement.

Income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Total revenue was $208.4 million for the three months ended March 31, 2021.

We did not generate any revenue during the three months ended March 31, 2020.

The increase in total revenue was due to $12.4 million of revenue recorded in connection with the Angelini License Agreement and $196.0 million of revenue recorded in connection with the Takeda License and Termination Agreement.

Research and Development Expenses

Three Months Ended

September 30,

Three Months Ended March 31,

(in thousands)

Preclinical and development expense

Preclinical and development expenses

Payroll and payroll-related expenses

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Total research and development

Research and development expenses were $15.9 million for the three months ended September 30, 2020 compared to $11.6 million for the three months ended September 30, 2019.

The increase of $4.3 million included an increase in preclinical and development expenses and payroll and payroll-related expenses for the clinical studies of OV101 and our Takeda collaboration expenses related to OV935.

During the three months ended September 30, 2020, total research and development expenses consisted of $10.7 million in preclinical and development expenses, including a credit of $0.2 million representing costs to be reimbursed to us from Takeda in respect of the Takeda collaboration, $4.1 million in payroll and payroll-related expenses, of which $1.1 million related to stock-based compensation, and $1.1 million in other expenses .

During the three months ended September 30, 2019, total research and development expenses consisted of $7.9 million in preclinical and development expenses, including a credit of $0.7 million representing costs to be reimbursed to us from Takeda in respect of the Takeda collaboration, $2.8 million in payroll and payroll-related expenses, of which $0.5 million related to stock-based compensation, and $0.9 million in other expenses.

Research and development expenses were $16.2 million for the three months ended March 31, 2021 compared to $14.6 million for the three months ended March 31, 2020 .

The increase of $1.6 million included a decrease in preclinical and development expenses for the clinical studies of OV101 and an increase in Takeda collaboration expenses related to OV935.

During the three months ended March 31, 2021 total research and development expenses consisted of $11.1 million in preclinical and development expenses, including a credit of $2.6 million representing costs to be reimbursed to us from Takeda in respect of the Takeda collaboration, $3.9 million in payroll and payroll-related expenses, of which $0.5 million related to stock-based compensation, and $1.2 million in other expenses .

During the three months ended March 31, 2020, total research and development expenses consisted of $9.8 million in preclinical and development expenses, including a credit of $0.4 million representing costs to be reimbursed to us from Takeda in respect of the Takeda collaboration, $3.9 million in payroll and payroll-related expenses, of which $0.6 million related to stock-based compensation, and $1.0 million in other expenses.

General and Administrative Expenses

Three Months Ended

September 30,

Three Months Ended March 31,

(in thousands)

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Total general and administrative

General and administrative expenses were $ 7.4 million for the three months ended September 30, 2020 compared to $ 5.2 million for the three months ended September 30, 2019.

The increase of $ 2.3 million was primarily due to an increase in legal fees , complian ce and pre-commercializ ation expenses and professional fees of $ 1.

1 millio n and an increase in payroll and payroll-related expenses of $ 1.3 million offset by a decrease in general office expe nses of $0.

General and administrative expenses were $15.6 million for the three months ended March 31, 2021 compared to $5.7 million for the three months ended March 31, 2020 .

The increase of $9.9 million was primarily due to an increase in legal fees and professional fees of $8.8 million, which includes $8.2 million of one-time fees related to the Takeda License and Termination Agreement, an increase in payroll and payroll-related expenses of $1.0 million and an increase in general office expenses of $0.1 million.

Other (Expense) Income, net

Other expense was $0.02 million for the three months ended September 30, 2020.

Other income was $0.1 million for the three months ended September 30, 2019.

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following table summarizes the results of our operations for the periods indicated:

Nine Months Ended

September 30,

(in thousands)

License revenue

Operating Expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income, net

Total revenue was $6.9 million for the nine months ended September 30, 2020.

We did not generate any revenue during the nine months ended September 30, 2019.

The increase in total revenue was due to $6.9 million of revenue related to the Angelini License Agreement.

Research and Development Expenses

Nine Months Ended

September 30,

(in thousands)

Preclinical and development expense

Payroll and payroll-related expenses

Other expenses

Total research and development

Research and development expenses were $46.5 million for the nine months ended September 30, 2020 compared to $30.1 million for the nine months ended September 30, 2019.

The increase of $ 16.5 million included an increase in preclinical and development expenses and payroll and payroll-related expenses for the clinical studies of OV101 and our Takeda collaboration expenses related to OV935.

During the nine months ended September 30, 2020, total research and development expenses consisted of $32.0 million in preclinical and development expenses, including a credit of $1.3 million representing costs to be reimbursed to us from Takeda in respect of the Takeda collaboration, $11.7 million in payroll and payroll-related expenses, of which $2.2 million related to stock-based compensation, and $2.9 million in other expenses .

During the nine months ended September 30, 2019, total research and development expenses consisted of $18.6 million in preclinical and development expenses, including a credit of $3.6 million representing costs to be reimbursed to us from Takeda in respect of the Takeda collaboration, $8.6 million in payroll and payroll-related expenses, of which $1.9 million related to stock-based compensation, and $2.8 million in other expenses.

General and Administrative Expenses

Nine Months Ended

September 30,

(in thousands)

Payroll and payroll-related expenses

Legal and professional fees

General office expenses

Total general and administrative

General and administrative expenses were $20.2 million for the nine months ended September 30, 2020 compared to $14.1 million for the nine months ended September 30, 2019.

The increase of $6.1 million was primarily due to an increase in legal fees, compliance and pre-commercialization expenses and professional fees of $4.0 million, an increase in general office expenses of $0.4 million, and an increase in payroll and payroll-related expenses of $1.8 million.

Other Income, net

Other income included interest income of $0.8 million for the nine months ended September 30, 2020 and $0.7 million for the nine months ended September 30, 2019.

Other expense was $0.1 million for the three months ended March 31, 2021.

Other income was $0.3 million for the three months ended March 31, 2020.

Liquidity and Capital Resources

As of September 30, 2020, we had total cash and cash equivalents of $86.9 million as compared to $76.7 million of cash, cash equivalents and short-term investments as of December 31, 2019.

The $10.2 million increase in total cash, cash equivalents and short-term investments was due primarily to proceeds of $46.7 million from the August 2020 Offering (as defined below) offset by the net loss of $59.0 million for the nine months ended September 30, 2020.

In August 2020, we sold 6,250,000 shares of our 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 us, or the August 2020 Offering.

On July 9, 2020, we entered into the Angelini License Agreement with Angelini, pursuant to which we granted to Angelini exclusive rights to develop and commercialize OV101 in the European Territory.

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.

As of March 31, 2021, we had total cash and cash equivalents of $233.1 million as compared to $72.0 million of cash and cash equivalents as of December 31, 2020.

The $161.1 million increase in total cash and cash equivalents was due primarily to the one-time upfront payment of $196.0 million received as part of the Takeda License and Termination Agreement offset by operating expenses of $31.8 million for the three months ended March 31, 2021.

In November 2020, we filed a new shelf registration statement on Form S-3 (Registration No.

333-250054) that allows us to sell up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities and/or warrants (the “S-3 Registration Statement”), which includes a prospectus covering the issuance and sale of up to $75.0 million of common stock pursuant to an at-the-market (“ATM”) offering program.

As of March 31, 2021, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.

Similar to other development stage biotechnology companies, we have generated limited revenue, which has been through the Angelini License Agreement.

We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years.

We incurred net losses of approximately $59.0 million and $43.5 million for the nine months ended September 30, 2020 and 2019, respectively.

These losses are expected to continue for an extended period of time.

As of September 30, 2020, we had an accumulated deficit of approximately $272.2 million and working capital of $72.4 million.

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

Management believes it can pursue implementing various cost cutting measures in order to generate additional liquidity.

The Company’s management believes that these actions alleviate the substantial doubt referred to above and therefore have concluded that the Company remains a going concern.

Our plans to alleviate the substantial doubt about our ability to continue as a going concern may not be successful.

The failure to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategy.

If we are unable to raise capital, we 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 us to relinquish rights to certain drug candidates that we might otherwise seek to develop or commercialize independently.

With the exception of the three months ended March 31, 2021, when we received the one-time upfront payment of $196.0 million as part of the Takeda License and Termination Agreement, we have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years.

We recorded net income of approximately $176.0 million and net losses of $20.0 million for the three months ended March 31, 2021 and 2020 , respectively.

We expect to incur net losses in subsequent periods.

As of March 31, 2021, we had an accumulated deficit of $118.2 million and working capital of $220.3 million.

We believe that our existing cash and cash equivalents as of March 31, 2021 will be sufficient to fund our current operating plans through at least the next 12 months from the date of the filing of this Quarterly Report on Form 10-Q.

We plan to finance our cash needs through either equity offerings, debt financings, collaborations, strategic alliances, or licensing agreements or a combination of any such transactions.

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If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.

If we raise additional funds through collaborations, strategic

alliances or licensing agreements with third parties for one or more of our current or future drug candidates, we may be required to relinquish valuable righ ts to our technologies, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us.

Our failure to raise capital as and when needed would have a material adverse effect on our financial condit ion and our ability to pursue our business strategy.

If we raise additional funds through collaborations, strategic alliances or licensing agreements with third parties for one or more of our current or future drug candidates, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us.

Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.

The following table summarizes our cash flows for the periods indicated:

Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands)

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Financing activities

Net increase in cash and cash equivalents

Net Cash Used in Operating Activities

Net cash used in operating activities was $37.1 million for the nine months ended September 30, 2020, which consisted of a net loss of $59.0 million offset by a net of $22.0 million of non-cash charges and indirect cash changes, primarily related to $5.5 million of stock-based compensation expense and $13.1 million of deferred revenue.

Net cash used in operating activities was $34.2 million for the nine months ended September 30, 2019, which consisted of a net loss of $43.5 million offset by a net of $9.3 million of non-cash charges and indirect cash changes, primarily related to $4.1 million of stock-based compensation expense.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was $34.7 million for the nine months ended September 30, 2020, compared to $5.0 million of net cash provided by investing activities for the nine months ended September 30, 2019.

The change in net cash provided by investing activities was primarily due to the higher maturities of short-term investments during the nine months ended September 30, 2020 compared to maturities during the nine months ended September 30, 2019.

Net increase (decrease) in cash and cash equivalents

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $160.9 million for the three months ended March 31, 2021, which consisted of net income of $176.0 million offset by a net of $15.1 million of non-cash charges and indirect cash changes, primarily related to $1.3 million of stock-based compensation expense and $12.4 million of deferred revenue.

Net cash used in operating activities was $18.4 million for the three months ended March 31, 2020, which consisted of a net loss of $20.0 million offset by a net of $1.6 million of non-cash charges and indirect cash changes, primarily related to $1.3 million of stock-based compensation expense.

Net Cash (Used In) Provided by Investing Activities

Net cash used in investing activities was $12,000 for the three months ended March 31, 2021, compared to $3.8 million of net cash provided by investing activities for the three months ended March 31, 2020.

The change in net cash provided by investing activities was primarily due to the maturities of short-term investments during the three months ended March 31, 2020 compared to no investment activity during the three months ended March 31, 2021.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $47.3 million for the nine months ended September 30, 2020 was primarily due to proceeds from August 2020 Offering.

Net cash provided by financing activities of $30.7 million for the nine months ended September 30, 2019 was primarily due to net proceeds from our public offering in February 2019.

Net cash provided by financing activities of $0.1 million for the three months ended March 31, 2021 primarily due to proceeds purchases of shares under the 2017 employee stock purchase plan and the exercise of options.

Net cash provided by financing activities of $16,000 for the three months ended March 31, 2020 was primarily due to purchases of shares under the 2017 employee stock purchase plan, offset by expenses related to our ATM program.

Contractual Obligations and Commitments

As of September 30, 2020, we agreed to continue certain studies that were ongoing at the time of signing the Angelini License Agreement.

We had no other material contractual obligations or commitments.

As of March 31, 2021, we had no material contractual obligations or commitments.

We had no long-term debt or capital leases and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis.

We excluded any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property as contractual obligations or commitments, including agreements with H.

Lundbeck A/S, Northwestern, and our Takeda license agreement.

Lundbeck A/S and Northwestern.

Pursuant to these license agreements, we have agreed to make milestone payments up to an aggregate of $194.3 million upon the achievement of certain development, regulatory and sales milestones.

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Actual results may differ from these estimates under different assumptions or conditions.

During the nine months ended September 30, 2020, we recognized license revenue resulting in a change to our critical accounting policies as reported for the year ended December 31, 2019 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 11, 2020.

In addition, see Note 2 of our Condensed Consolidated Financial Statements under the heading “Recent Accounting Pronouncements” for new accounting pronouncements or changes to the accounting pronouncements during the nine months ended September 30, 2020.

We recognize license revenue under certain of our sublicense agreements that are within the scope of ASC 606.

The terms of these agreements may contain multiple performance obligations, which may include licenses and research and development activities.

We evaluate these agreements under ASC 606 to determine the distinct performance obligations.

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

We defer recognition of non-refundable upfront license fees if the performance obligations are not satisfied.

Prior to recognizing revenue, we make 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.

Variable consideration may include upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from collaboration.

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

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

Revenue related to ongoing trials is recognized by measuring the progress toward complete satisfaction of the performance obligations over time based on the portion of estimated total trial costs to be incurred.

Milestone payments are considered contingent variable consideration which are not accounted for until the contingency is met.

Quantitative and Qualitat ive Disclosures About Market Risk.

The primary objectives of our investment activities are to ensure liquidity and to preserve capital.

As of September 30, 2020, we had cash and cash equivalents of $86.9 million that were held in an interest-bearing money market account.

Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S.

interest rates.

Due to the short-term maturities of our cash equivalents and short-term investments and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents and short-term investments.

To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in institutional market funds that are comprised of U.S.

Treasury and U.S.

Treasury-backed repurchase agreements as well as treasury notes and high quality short-term corporate bonds.

During the three months ended March 31, 2021, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2020 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 15, 2021.

In addition, see Note 2 of our Condensed Financial Statements under the heading “Recent Accounting Pronouncements” for new accounting pronouncements or changes to the accounting pronouncements during the three months ended March 31, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis