What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-05-05 · 74 added, 36 removed, 171 unchanged (39% of the section changed)

15 unchanged sentences

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

Through March 31, 2023, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and our common stock.

Through June 30, 2023, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and our common stock.

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

As of March 31, 2023, we had $117.7 million in cash, cash equivalents and marketable securities.

As of March 31, 2023, we had an accumulated deficit of $238.9 million.

As of June 30, 2023, we had $96.5 million in cash, cash equivalents and marketable securities.

As of June 30, 2023, we had an accumulated deficit of $251.3 million.

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

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In the first quarter of 2023, 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 the fourth quarter of 2022, the FDA cleared our investigational new drug application (“IND”) for OV329, a GABA-aminotransferase inhibitor, and we subsequently initiated a Phase 1 trial in healthy volunteers.

In the fourth quarter of 2022, the FDA cleared our investigational new drug application for OV329, a GABA-aminotransferase inhibitor, and we subsequently initiated a Phase 1 trial in healthy volunteers.

Significant Risks and Uncertainties

51 unchanged sentences

Other income (expense), net primarily consists of unrealized gains (losses) on long-term equity investments and interest income and accretion of discount on investments in marketable securities.

Reclassifications

Certain prior period amounts have been reclassified for consistency with the current period presentation.

These reclassifications had no effect on the reported results of operations.

Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

Comparison of the Three Months Ended June 30, 2023 and 2022

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

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Change $

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 Change $

(in thousands)

License and other revenue $ 75 $ — $ 75

License revenue - related party — — —

Total revenue 75 — 75

8 unchanged sentences

Net loss $ (12,408) $ (14,588) $ 2,180

Royalty revenue of $66,160 was generated in the three months ended March 31, 2023, compared to revenue of $1.4 million that was recognized in the same period in 2022 relating to licensing agreements.

Revenue of $75,000 was generated in the three months ended June 30, 2023.

No revenue was recognized in the three months ended June 30, 2022.

Research and Development Expenses

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Change $

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 Change $

(in thousands)

3 unchanged sentences

Total research and development $ 5,999 $ 6,047 $ (48)

During the three months ended March 31, 2023, total research and development expenses were $6.6 million compared to $7.8 million for the same period in 2022.

The decrease of $1.2 million was primarily comprised of $2.0 million reduction in payroll and related expenses following an organizational restructuring in 2022, partially offset by a $0.6 million increase in preclinical and development expenses relating to the OV329 phase 1 clinical trial.

During the three months ended June 30, 2023 and 2022, total research and development expenses were $6.0 million.

Payroll and related expenses increased with the additions of new management hires.

Other expense decreased due to cost reduction measures.

General and Administrative Expenses

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Change $

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 Change $

(in thousands)

3 unchanged sentences

Total general and administrative $ 8,248 $ 8,258 $ (10)

General and administrative expenses were $8.3 million for the three months ended March 31, 2023 compared to $9.9 million for the same period in 2022.

The decrease of $1.5 million is primarily due to a reduction in legal and consulting fees and a decrease in general office expenses.

General and administrative expenses were $8.2 million and $8.3 million for the three months ended June 30, 2023 and 2022, respectively.

The increase in payroll and payroll-related expenses between the periods was primarily due to $1.1 million in severance costs recognized during the three months ended June 30, 2023, partially offset by a decrease in legal and professional fees relating to projects during the same period in 2022.

Other Income (Expense), net

Other income (expense), net for the three months ended June 30, 2023 and 2022 includes unrealized gain (loss) on long-term equity investments and interest earned and accretion of discount on marketable securities.

Other income, net for the three months ended June 30, 2023 was $1.8 million compared to other expense of $0.3 million for the same period in 2022.

The increase of $2.0 million is primarily due to interest and accretion on investments in marketable securities.

Comparison of the Six Months Ended June 30, 2023 and 2022

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

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 Change $

(in thousands)

License and other revenue $ 141 $ 1,445 $ (1,304)

Total revenue 141 1,445 (1,304)

Operating expenses:

Research and development 12,613 13,879 (1,266)

General and administrative 16,592 18,138 (1,546)

Total operating expenses 29,205 32,017 (2,812)

Loss from operations (29,064) (30,571) 1,508

Other income (expense), net 3,300 (125) 3,425

Loss before provision for income taxes (25,764) (30,697) 4,933

Provision for income taxes — — —

There was no tax benefit or expense recorded for the three months ended March 31, 2023 and 2022.

Net loss $ (25,764) $ (30,697) $ 4,933

Revenue of $141,160 was generated in the six months ended June 30, 2023, compared to revenue of $1.4 million recognized in the same period in 2022 relating to licensing agreements.

Research and Development Expenses

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 Change $

(in thousands)

Preclinical and development expenses $ 5,605 $ 4,724 $ 881

Payroll and payroll-related expenses 5,401 7,266 (1,865)

Other expenses 1,607 1,889 (282)

Total research and development $ 12,613 $ 13,879 $ (1,266)

During the six months ended June 30, 2023, total research and development expenses were $12.6 million compared to $13.9 million for the same period in 2022.

The decrease of $1.3 million was primarily due to a $1.9 million reduction in payroll and payroll-related expenses following an organizational restructuring in 2022, and a reduction in severance costs of $0.1 million compared to $1.3 million for the same period in 2022.

The decrease in payroll and payroll-related expenses was offset by a $0.8 million increase in preclinical and development expenses relating to the Phase 1 clinical trial for OV329.

General and Administrative Expenses

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 Change $

(in thousands)

Payroll and payroll-related expenses $ 9,777 $ 8,538 $ 1,239

Legal and professional fees 3,496 5,028 (1,532)

General office expenses 3,319 4,572 (1,253)

Total general and administrative $ 16,592 $ 18,138 $ (1,546)

General and administrative expenses were $16.6 million for the six months ended June 30, 2023 compared to $18.1 million for the same period in 2022.

The decrease of $1.5 million was primarily due to a reduction in legal and professional fees of $1.5 million and a decrease in general office expenses of $1.3 million, partially offset by an increase in payroll and payroll-related expenses of $1.2 million.

Severance costs of $1.6 million were recognized during the six months ended June 30, 2023 compared to $0.7 million for the same period in 2022.

Other Income (Expense), net

Other income (expense), net for the three months ended March 31, 2023 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 March 31, 2022.

Other income (expense), net for the six months ended June 30, 2023 results from unrealized gain (loss) on long-term equity investments and interest earned and accretion of discount on marketable securities.

Other income, net for the six months ended June 30, 2023 was $3.3 million compared to other expense of $0.1 million for the same period in 2022.

The increase of $3.4 million is primarily due to interest and accretion on investments in marketable securities.

Liquidity and Capital Resources

As of March 31, 2023, we had total cash, cash equivalents and marketable securities of $117.7 million as compared to $129.0 million as of December 31, 2022.

We believe that our cash, cash equivalents and marketable securities as of March 31, 2023 will fund our projected operating expenses and capital expenditure requirements for at least 12 months from the issuance of this Quarterly Report on Form 10-Q.

As of June 30, 2023, we had total cash, cash equivalents and marketable securities of $96.5 million as compared to $129.0 million as of December 31, 2022.

We believe that our cash, cash equivalents and marketable securities as of June 30, 2023 will fund our projected operating expenses and capital expenditure requirements for at least 12 months from the issuance of this Quarterly Report on Form 10-Q.

Similar to other development-stage biotechnology companies, we have generated limited revenue, which has been through various license and collaboration agreements.

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

We recorded net losses of approximately $13.4 million and $16.1 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, we had an accumulated deficit of $238.9 million and working capital of $112.8 million.

We recorded net losses of approximately $12.4 million and $14.6 million for the three months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, we had an accumulated deficit of $251.3 million and working capital of $92.0 million.

Future Funding Requirements

4 unchanged sentences

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 March 31, 2023, 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 June 30, 2023, 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.

7 unchanged sentences

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 our condensed consolidated balance sheets.

Payment obligations under the lease agreement include approximately $1.9 million in the 12 months subsequent to March 31, 2023 and approximately $23.5 million over the term of the agreement.

Payment obligations under the lease agreement include approximately $1.9 million in the 12 months subsequent to June 30, 2023 and approximately $22.5 million over the remaining term of the agreement.

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

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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 (“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, 2023, we had up to $250.0 million available under our S-3 Registration Statement, including up to $75.0 million available pursuant to our ATM offering program.

As of June 30, 2023, we had up to $250.0 million available under our S-3 Registration Statement, including up to $75.0 million available pursuant to our ATM offering program.

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

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

(in thousands)

5 unchanged sentences

Net Cash Used In Operating Activities

Net cash used in operating activities was $12.1 million for the three months ended March 31, 2023, which consisted of net loss of $13.4 million offset by a net of $1.2 million of non-cash charges and indirect cash charges,

primarily related to $1.9 million of stock-based compensation expense.

Net cash used in operating activities was $20.1 million for the three months ended March 31, 2022, which consisted of net loss of $16.1 million offset by a net of $2.8 million of non-cash charges and indirect cash changes, primarily related to $1.3 million of stock-based compensation expense, and decreases in accounts payable and accrued expenses of $4.6 million.

Net cash used in operating activities was $23.8 million for the six months ended June 30, 2023, which consisted of a net loss of $25.8 million offset by a net of $2.0 million of non-cash charges and indirect cash charges, primarily related to $3.9 million of stock-based compensation expense.

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

Net Cash Provided By (Used In) Investing Activities

Net cash provided by investing activities was $30.2 million for the three months ended March 31, 2023, which was due to sales/maturities of marketable securities during the period.

Net cash used in investing activities was $1.1 million for the three months ended March 31, 2022.

Net cash provided by investing activities was $50.3 million for the six months ended June 30, 2023, which was due to sales/maturities of marketable securities during the period.

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

Net Cash Provided By Financing Activities

Net cash provided by financing activities during the three months ended March 31, 2023 and 2022 resulted from proceeds from the exercise of options under the 2017 equity incentive plan and purchases of shares under the 2017 employee stock purchase plan.

Net cash provided by financing activities during the six months ended June 30, 2023 and 2022 resulted from proceeds from the exercise of stock options under the 2017 equity incentive plan and purchases of shares under the 2017 employee stock purchase plan.

Smaller Reporting Company Status

9 unchanged sentences

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

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources.

other sources.

Changes in estimates are reflected in reported results for the period in which they become known.

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

During the three months ended March 31, 2023, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2022 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 13, 2023.

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, 2023.

During the three and six months ended June 30, 2023, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2022 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 13, 2023.

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 three and six months ended June 30, 2023.

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