What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-09 · 65 added, 62 removed, 175 unchanged (42% of the section changed)

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The following chart sets forth the status and mechanism of action of our drug candidates:

In July 2022, Takeda provided a corporate update in which it reiterated that the anticipated timeline for regulatory filing of the two pivotal Phase 3 trials evaluating soticlestat for Lennox-Gastaut and Dravet syndromes are expected in Takeda’s 2024 fiscal year.

In October 2022, the FDA cleared our IND for OV329, Ovid's GABA-aminotransferase inhibitor.

We intend to initiate a Phase 1 study in healthy volunteers during the fourth quarter of 2022.

We have historically funded our business primarily through the sale of capital stock.

Through June 30, 2022, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and our common stock.

As of June 30, 2022, we had $152.4 million in cash, cash equivalents and marketable securities.

Through September 30, 2022, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and our common stock.

As of September 30, 2022, we had $137.9 million in cash, cash equivalents and marketable securities.

We have also, in previous periods, generated revenue through our license and collaboration agreements.

As of June 30, 2022, we had an accumulated deficit of $202.1 million.

As of September 30, 2022, we had an accumulated deficit of $214.0 million.

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

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and attract, hire and retain additional administrative, clinical, regulatory, manufacturing, commercial and scientific personnel.

COVID-19 Update

COVID-19 and Other Updates

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 in a hybrid environment, productively at home or in the office, and by continuing to abide by travel restrictions issued by federal, state and local governments.

Our hybrid work environment policy remains fluid as federal, state and local guidelines, rules and regulations continue to change and evolve.

We continue to operate normally with the exception of enabling all of our employees to work in a hybrid environment, productively at home or in the office.

Additionally, the recent trends towards rising inflation may also materially adversely affect our business and corresponding financial position and cash flows.

Inflationary factors, such as increases in the cost of our clinical trial materials and supplies, interest rates and overhead costs may adversely affect our operating results.

Rising interest and inflation rates also present a recent challenge impacting the U.S.

economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future.

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates continue to rise) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine, and employee availability and wage increases, which may result in additional stress on the Company’s working capital resources.

Financial Operations Overview

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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.

The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is

costly and time-consuming.

It is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct.

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Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021, respectively

Comparison of the Three Months Ended September 30, 2022 and 2021

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

Three Months Ended June 30, Three Months Ended June 30, Change

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Change

(in thousands)

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Loss from operations (12,804) (11,682) (1,122)

Other (expense) income, net (284) (3) (282)

Other income, net 836 3 833

Loss before provision for income taxes (11,968) (11,679) (289)

Provision for income taxes — 1,473 (1,473)

(Benefit) provision for income taxes — (295) 295

Net loss $ (11,968) $ (11,384) $ (584)

No revenue was generated in the three months ended June 30, 2022 and 2021.

Nominal revenue was generated in the three months ended September 30, 2022, and no revenue was generated in the same period in 2021.

Research and Development Expenses

Three Months Ended June 30, Three Months Ended June 30, Change

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Change

(in thousands)

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Total research and development $ 5,183 $ 4,917 $ 266

During the three months ended June 30, 2022, total research and development expenses were $6.0 million compared to $7.7 million for the same period in 2021.

The decrease of $1.6 million was primarily due to the decision to discontinue the clinical study of OV101 in Angelman syndrome and Fragile X syndrome and the termination of the Takeda collaboration agreement for OV935.

During the three months ended September 30, 2022, total research and development expenses were $5.2 million compared to $4.9 million for the same period in 2021.

General and Administrative Expenses

Three Months Ended June 30, Three Months Ended June 30, Change

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Change

(in thousands)

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Total general and administrative $ 7,632 $ 6,764 $ 867

General and administrative expenses were $8.3 million for the three months ended June 30, 2022 compared to $6.6 million for the same period in 2021.

The increase of $1.6 million was primarily due to straight-line rent expense recognized of approximately $0.5 million, strategic consulting fees of approximately $0.6 million, and increased legal and accounting fees relating to business development and compliance of approximately $0.2 million.

Provision for Income Taxes

There was no tax provision recorded for the three months ended June 30, 2022.

The tax provision recorded for the three months ended June 30, 2021 was $1.5 million, which related to licensing revenue recognized in the first quarter of 2021.

Other (Expense) Income, net

Other (expense) income, net for the three months ended June 30, 2022 includes unrealized gain (loss) on long-term equity investments and interest earned on marketable securities, and included interest income and other nominal items for the three months ended June 30, 2021.

Comparison of the Six Months Ended June 30, 2022 and 2021, respectively

General and administrative expenses were $7.6 million for the three months ended September 30, 2022 compared to $6.8 million for the same period in 2021.

The difference of $0.9 million was primarily due to increased stock compensation and bonus expense incurred.

Provision (Benefit) for Income Taxes

There was no tax provision recorded for the three months ended September 30, 2022.

The tax benefit recorded for the three months ended September 30, 2021 was $0.3 million, which related to truing up the provision resulting from licensing revenue recognized in the first quarter of 2021.

Other Income, net

Other income, net for the three months ended September 30, 2022 includes unrealized gain (loss) on long-term equity investments and interest earned on marketable securities, and included interest income and other nominal items for the three months ended September 30, 2021.

Comparison of the Nine Months Ended September 30, 2022 and 2021

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

Six Months Ended June 30, Six Months Ended June 30,

2022 2021 Change

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Change

(in thousands)

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Net (loss) income $ (42,664) $ 148,835 $ (191,499)

Total revenue was $1.4 million during the six months ended June 30, 2022, recorded in connection with the Marinus and Healx License Agreements.

Total revenue was $208.4 million for the six months ended June 30, 2021, recorded in connection with the Takeda and Angelini License Agreements

Total revenue was $1.5 million during the nine months ended September 30, 2022, recorded in connection with the Marinus and Healx License Agreements.

Total revenue was $208.4 million for the nine months ended September 30, 2021, recorded in connection with the Takeda and Angelini License Agreements

Research and Development Expenses

Six Months Ended June 30, Six Months Ended June 30, Change

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Change

(in thousands)

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Total research and development $ 19,062 $ 28,850 $ (9,788)

During the six months ended June 30, 2022, total research and development expenses were $13.9 million compared to $23.9 million for the same period in 2021.

During the nine months ended September 30, 2022, total research and development expenses were $19.1 million compared to $28.9 million for the same period in 2021.

The decrease of $9.8 million was primarily due to the decision to discontinue the clinical study of OV101 in Angelman syndrome and Fragile X syndrome and the termination of the Takeda collaboration agreement for OV935.

General and Administrative Expenses

Six Months Ended June 30, Six Months Ended June 30, Change

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Change

(in thousands)

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Total general and administrative $ 25,770 $ 28,970 $ (3,201)

General and administrative expenses were $18.1 million for the six months ended June 30, 2022 compared to $22.2 million for the same period in 2021.

The decrease of $4.1 million was primarily due to the discontinuation of certain studies and programs detailed above, as well as reduced administrative headcount.

Provision for Income Taxes

There was no tax provision recorded for the six months ended June 30, 2022.

The tax provision recorded for the six months ended June 30, 2021 was $2.0 million, which related to licensing revenue recognized in the first quarter of 2021.

General and administrative expenses were $25.8 million for the nine months ended September 30, 2022 compared to $29.0 million for the same period in 2021.

The decrease of $3.2 million was due to reduced legal and professional fees relating to various agreements and potential business development activity in the prior period, offset by increase in stock-compensation, bonus and other payroll as well as increase in rent and other office expenses associated with the new headquarters space.

Provision (Benefit) for Income Taxes

There was no tax provision recorded for the nine months ended September 30, 2022.

The tax provision recorded for the nine months ended September 30, 2021 was $1.7 million, which related to licensing revenue recognized in the first quarter of 2021.

Other (Expense) Income, net

Other (expense) income for the six months ended June 30, 2022 includes unrealized gain (loss) on long-term equity investments and interest earned on marketable securities, and included interest income and other nominal items for the six months ended June 30, 2021.

Other (expense) income, net for the nine months ended September 30, 2022 includes unrealized gain (loss) on long-term equity investments and interest earned on marketable securities, and included interest income and other nominal items for the nine months ended September 30, 2021.

Liquidity and Capital Resources

As of June 30, 2022, we had total cash, cash equivalents and marketable securities of $152.4 million as compared to $187.8 million as of December 31, 2021.

The $35.4 million decrease was due to payments relating to licensing and other agreements of $5.0 million, and operating expenses totaling $32.0 million for the six months ended June 30, 2022.

As of September 30, 2022, we had total cash, cash equivalents and marketable securities of $137.9 million as compared to $187.8 million as of December 31, 2021.

The $49.9 million decrease was due to payments relating to licensing and other agreements and long-term equity investments of $8.5 million, and operating expenses totaling $44.8 million for the nine months ended September 30, 2022.

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

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 the next several years.

We recorded net losses of approximately $14.6 million and $15.8 million for the three months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, we had an accumulated deficit of $202.1 million and working capital of $146.9 million.

We recorded net losses of approximately $12.0 million and $11.4 million for the three months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, we had an accumulated deficit of $214.0 million and working capital of $133.8 million.

Future Funding Requirements

We believe that our cash, cash equivalents and marketable securities as of June 30, 2022 are sufficient to fund existing and planned cash requirements through at least the next 12 months from the date of filing of this Quarterly Report on Form 10-Q.

We believe that our cash, cash equivalents and marketable securities as of September 30, 2022 are sufficient to fund existing and planned cash requirements through at least the next 12 months from the date of filing of this Quarterly Report on Form 10-Q.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and other regulatory expenses and general overhead costs.

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We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability.

As of June 30, 2022, we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancellable, purchase order basis.

As of September 30, 2022, we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancellable, purchase order basis.

We cannot estimate whether we will receive or the timing of 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 AstraZeneca AB, H.

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The base rent under the lease is currently $2.3 million per year.

Rent payments commence 10 months following the commencement date of the lease, or January 10, 2023, and continue for 10 years following the rent commencement date.

Rent payments commence 10

months following the commencement date of the lease, or January 10, 2023, and continue for 10 years following the rent commencement date.

Rent also includes two months of free rent in the 6th and 7th months following the rent commencement date.

We issued a letter of credit in the amount of $1.9 million in association with the execution of the lease agreement, which is reflected as restricted cash on the balance sheet.

Payment obligations under the lease agreement include approximately $1.1 million in the 12 months subsequent to June 30, 2022 and approximately $23.5 million over the term of the agreement.

Payment obligations under the lease agreement include approximately $1.1 million in the 12 months subsequent to September 30, 2022 and approximately $23.5 million over the term of the agreement.

For additional information see Note 5 of our condensed consolidated financial statements under the heading "Leases."

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There can be no assurance that such financings will be obtained on terms acceptable to us, if at all.

The ongoing COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets.

The ongoing COVID-19 pandemic (along with the effects of the war in Ukraine, inflation, rising interest rates, and other economic uncertainty have already resulted in a significant disruption of global financial markets.

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 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.

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.

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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 June 30, 2022, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.

As of September 30, 2022, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.

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

Six Months Ended June 30,

2022 Six Months Ended June 30,

Nine Months Ended September 30,

2022 Nine Months Ended September 30,

(in thousands)

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Net Cash (Used In) Provided By Operating Activities

Net cash used in operating activities was $33.4 million for the six months ended June 30, 2022, which consisted of a net loss of $30.7 million offset by $3.1 million in stock-based compensation expense, $0.1 million, net, of other noncash transactions and charges, and a decrease in accounts payable and accrued expenses of $5.5 million.

Net cash provided by operating activities was $145.1 million for the six months ended June 30, 2021, which resulted from an upfront payment pursuant to the Takeda License and Termination Agreement, offset by operating expenses for the period.

Net cash used in operating activities was $46.1 million for the nine months ended September 30, 2022, which consisted of a net loss of $42.7 million and a decrease in accounts payable and accrued expenses of $8.1 million, partially offset by $4.8 million in stock-based compensation expense, $0.1 million, net of other noncash transactions and charges.

Net cash provided by operating activities was $130.6 million for the nine months ended September 30, 2021, which resulted from an upfront payment pursuant to the Takeda License and Termination Agreement, offset by operating expenses for the period.

Net Cash Used In Investing Activities

Net cash used in investing activities was $81.8 million for the six months ended June 30, 2022, which was primarily due to the purchases of marketable securities during the period.

A nominal amount was used in investing activities for the six months ended June 30, 2021.

Net cash used in investing activities was $83.7 million for the nine months ended September 30, 2022, which was primarily due to the purchases of marketable securities during the period.

A nominal amount was used in investing activities for the nine months ended September 30, 2021.

Net Cash Provided By Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2022 was primarily due to the exercise of options.

Net cash provided by financing activities of $0.1 million for the six months ended June 30, 2021 was primarily due to proceeds from exercise of options and purchases of shares under the 2017 employee stock purchase plan.

Net cash provided by financing activities during the nine months ended September 30, 2022 and 2021 was primarily due to proceeds from the exercise of options and purchases of shares under the 2017 employee stock purchase plan.

Emerging Growth Company Status and Smaller Reporting Company Status

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Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these

financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation.

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

During the six months ended June 30, 2022, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2021 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 15, 2022.

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 six months ended June 30, 2022.

During the nine months ended September 30, 2022, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2021 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 15, 2022.

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