What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-04 · 85 added, 60 removed, 185 unchanged (44% of the section changed)

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Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

We are a biopharmaceutical company committed to developing medicines that transform the lives of people with epilepsies and seizure-related disorders in a manner that is scientifically driven, patient focused and is coupled with an integrated and disciplined approach to research, clinical development and business development.

Our team has significant experience and understanding of rare epilepsies and seizure-related neurological conditions, and we continue to build insight into the way the different molecular mechanisms and pathways underlying these disorders impact the symptoms patients suffer.

We have set out to be a leader in the field, and have developed a differentiated pipeline containing three novel mechanisms of action to target different causes of epilepsies and seizures.

Our knowledge of epilepsy disease biology and pathology, which was acquired through our small molecule development programs, now contributes to our pursuit of additional relevant genetic targets and molecular pathways.

Over time, we have built a scalable scientific platform and efficient development capabilities in epilepsies that focus on clear, clinical endpoints.

We are initially pursuing therapeutic assets for rare disorders as they can leverage accelerated development programs.

If successfully developed and marketed in rare conditions, we intend to explore these assets for broader neurologic indications, as applicable.

We have set out to be a leader in the field of rare epilepsies and intractable neurological diseases with seizure symptoms.

Our differentiated pipeline of potential small molecule medicines has produced four unique anti-seizure programs to date, three of which we are actively developing, and the fourth, which we co-developed, was subsequently repurchased by Takeda Company Limited (“Takeda”).

This pipeline was curated using an integrated and disciplined approach to business development, research, and clinical development.

All of the programs in our pipeline act upon either extrinsic or intrinsic factors modulating neuronal hyperexcitability, which we believe underlies seizures and other neurological conditions.

Our management team has substantial understanding of rare disease and neurological conditions gained from the management team's collective experience and contributions to the development and launch of more than 25 approved medicines in their respective careers prior to joining Ovid.

Such experience includes many approved anti-seizure medicines.

Our knowledge of the underlying biologic targets driving hyperexcitability and the pathology of refractory epilepsies has produced clinical-stage development programs, the most advanced of which was soticlestat, which was repurchased by Takeda in 2021 and is being actively studied by Takeda in two pivotal Phase 3 trials in Lennox-Gastaut syndrome and Dravet syndrome.

Two of our three programs are in clinical trials.

We expect to submit an investigational new drug (IND) application to begin clinical trials for the third program in the second half of 2024.

Over time, we have built a replicable and scalable approach to develop small molecule candidates, which begins with conducting animal disease models and toxicology studies in the pre-clinic to build evidence and confidence before moving into the clinic.

Initially, we are pursuing therapeutic assets for rare epilepsies and seizure disorders as they can leverage cost-efficient and accelerated development programs and they can be evaluated with concrete and measurable endpoints such as seizures and electroencephalogram (EEG) readings.

In addition to seizures, if successfully developed and marketed, we intend to explore our pipeline assets for broader neurologic indications caused by neuronal hyperexcitabilty, as applicable.

Our cohesive focus in rare epilepsies and seizures reinforces our belief that we can develop and produce multiple novel medicines, scale our infrastructure, and thereby succeed in our mission.

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

Through September 30, 2023, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and our common stock, which excludes the $30 million received from Ligand Pharmaceuticals Incorporated (“Ligand”) pursuant to the purchase and sale agreement (the “Ligand Agreement”) for the sale to Ligand of certain royalty, regulatory and commercial milestone payments that we are eligible to receive under the royalty, license and termination agreement (“RLT Agreement”) with Takeda.

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

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.

As of September 30, 2023, we had $87.1 million in cash, cash equivalents and marketable securities.

As of September 30, 2023, we had an accumulated deficit of $262.5 million.

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

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

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 for OV329, a GABA-aminotransferase inhibitor, and we subsequently initiated a Phase 1 trial in healthy volunteers.

In connection with Takeda's second quarter earnings announcement in October 2023, Takeda reiterated 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.

Under the RLT Agreement with Takeda, if soticlestat is successfully approved and commercialized, Ovid is eligible to receive up to $660 million in regulatory and commercial milestones and tiered royalties up to 20% on all indications and regions.

In October 2023, we entered into the Ligand Agreement for the sale to Ligand of a 13% interest in the potential milestone and royalty payments that we are eligible to receive under the RLT Agreement.

Under the Ligand Agreement, Ligand paid the Company $30 million, less $100,000 of reimbursable expenses.

We retain ownership of 87% of such potential milestone and royalty payments.

In May 2023, we in-licensed OV888 (formerly GV101) and a library of highly-selective Rho-associated coiled-coil containing pr otein kinase 2 (ROCK2) inhibitors from Graviton Biosciences and entered into a research and collaboration agreement with Graviton Biosciences.

Under the collaboration, Graviton is responsible for developing the lead program through Phase 2 development and we will then assume responsibility for Phase 3 development and commercialization.

The lead program from this collaboration, OV888, is in a Phase 1 multiple ascending dose study.

OV888 is formulated as a hard gel cap, which we expect to be the future clinical formulation.

That Phase 1 study is anticipated to be completed in the first half of 2024.

Ovid and Graviton intend to initiate a signal-finding trial in people living with cerebral cavernous malformations in the second half of 2024.

No serious adverse events have been observed in the Phase 1 study thus far.

In December 2022, we initiated a Phase 1 study for OV329, a next-generation GABA-aminotransferase inhibitor, in healthy volunteers.

That study is continuing to dose-escalate in the single-ascending dose cohorts and anticipates initiating a multiple-ascending dose study .

No serious adverse events have been observed in the Phase 1 study thus far.

At our R&D Day on October 2, 2023, we shared preclinical data demonstrating OV329 elicits an EEG response which is a pharmacodynamic marker of anti-convulsant activity.

We subsequently guided that we will be adding a transcranial

magnetic stimulation to the Phase 1 study to serve as a second biomarker for efficacy in addition to measuring target engagement via magnetic resonance spectroscopy.

The current Phase 1 is expected to be completed in the second half of 2024.

Additionally, we announced plans to develop an IV formulation of OV329 for potential use in acute seizures based upon emerging evidence that GABA-AT inhibition may be effective in the treatment of status epilepticus.

An IND application for the IV formulation is expected in the second half of 2024.

We are also developing a portfolio of direct activators of the potassium chloride co-transporter 2 (KCC2) for the potential treatment of seizures and other neurological indications, including OV350.

We are conducting multiple non-clinical studies to characterize the therapeutic potential of direct activation of the KCC2 from our library of compounds, which is a biological target implicated in many neurological conditions including seizures.

An IV formulation of OV350 is progressing toward an anticipated IND for an anti-convulsant indication in the second half of 2024.

In October 2023, we also presented at our R&D Day animal studies that validate OV350’s potential anti-psychotic properties.

We believe non-epilepsy indications may represent future development collaboration opportunities for the Company.

Significant Risks and Uncertainties

The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with bank failures, public health crises and the ongoing war between Russia and Ukraine may have a material adverse effect on our business, financial condition, results of operations and growth prospects.

The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with bank failures, public health crises and global geopolitical tensions, like the ongoing war between Russia and Ukraine and the war in Israel, may have a material adverse effect on our business, financial condition, results of operations and growth prospects.

The resulting high inflation rates may materially affect our business and corresponding financial position and cash flows.

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Furthermore, economic conditions have produced downward pressure on share prices.

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 remain high or begin to rise again) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, the global geopolitical tension as a result of the ongoing war between Russia and Ukraine, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital resources.

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 remain high or begin to rise again) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, global geopolitical tensions as a result of the ongoing war between Russia and Ukraine and the war in Israel, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital resources.

In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with:

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We have not generated any revenue from commercial drug sales and we do not expect to generate any further revenue unless or until we obtain regulatory approval 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.

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.

Research and Development Expenses

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Results of Operations

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

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

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

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

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

(in thousands)

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Net loss $ (11,253) $ (11,968) $ 715

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.

Royalty revenue of $108,972 was generated in the three months ended September 30, 2023, compared to revenue of $11,102 recognized in the three months ended September 30, 2022.

Research and Development Expenses

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(in thousands)

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Total research and development $ 5,333 $ 5,183 $ 149

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.

During the three months ended September 30, 2023 and 2022, total research and development expenses were $5.3 million compared to $5.2 million for the same period in 2022.

General and Administrative Expenses

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

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(in thousands)

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Total general and administrative $ 6,805 $ 7,632 $ (826)

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.

General and administrative expenses were $6.8 million and $7.6 million for the three months ended September 30, 2023 and 2022, respectively.

The $0.8 million decrease between the periods was primarily due to a reduction in force in general and administrative roles completed in the second quarter of 2023, partially offset by increased legal and professional fees relating to projects during the same period in 2022.

General office expenses decreased as a result of cost-reduction initiatives during the period.

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

Other income (expense), net for the three months ended September 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 (expense), net for the three months ended September 30, 2023 and 2022 was $0.8 million.

Comparison of the Nine Months Ended September 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 $

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Change $

(in thousands)

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Net loss $ (37,017) $ (42,664) $ 5,648

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.

Royalty revenue of $250,132 was generated in the nine months ended September 30, 2023, compared to revenue of $1.5 million recognized in the same period in 2022 relating to licensing agreements.

Research and Development Expenses

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(in thousands)

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Total research and development $ 17,946 $ 19,062 $ (1,116)

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.

During the nine months ended September 30, 2023, total research and development expenses were $17.9 million compared to $19.1 million for the same period in 2022.

The decrease of $1.1 million was primarily due to a $1.8 million reduction in payroll and payroll-related expenses following an organizational restructuring in 2022, offset by $0.8 million increase in preclinical and development expenses, primarily related to OV329 Phase 1 trial.

General and Administrative Expenses

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

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(in thousands)

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Total general and administrative $ 23,397 $ 25,770 $ (2,372)

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.

General and administrative expenses were $23.4 million for the nine months ended September 30, 2023 compared to $25.8 million for the same period in 2022.

The decrease of $2.4 million was primarily due to a reduction in legal and professional fees of $2.2 million and a decrease in general office expenses of $1.1 million, partially offset by an increase in payroll and payroll-related expenses of $0.8 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.

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

Other Income (Expense), net

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.

Other income (expense), net for the nine months ended September 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 nine months ended September 30, 2023 was $4.1 million compared to $0.7 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 on such investments that began in the second half of 2022.

Liquidity and Capital Resources

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.

As of September 30, 2023, we had total cash, cash equivalents and marketable securities of $87.1 million, which does not include the $29.9 million received from Ligand in October 2023 pursuant to the Ligand Agreement.

We believe that our cash, cash equivalents and marketable securities as of September 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 $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.

We recorded net losses of approximately $11.3 million and $12.0 million for the three months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, we had an accumulated deficit of $262.5 million and working capital of $83.0 million, which does not include the $29.9 million received from Ligand in October 2023 pursuant to the Ligand Agreement.

Future Funding Requirements

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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, 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 September 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.

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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 June 30, 2023 and approximately $22.5 million over the remaining term of the agreement.

Payment obligations under the lease agreement include approximately $1.9 million in the 12 months subsequent to September 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 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.

As of September 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:

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

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

(in thousands)

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Net Cash Used In Operating Activities

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 used in operating activities was $33.9 million for the nine months ended September 30, 2023, which primarily consisted of a net loss of $37.0 million offset by non-cash charges, primarily related to $5.5 million of stock-based compensation expense.

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

Net Cash Provided By (Used In) Investing Activities

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 investing activities was $46.0 million for the nine months ended September 30, 2023, which was primarily due to sales of and maturity of marketable securities during the period.

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

Net Cash Provided By Financing Activities

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.

Net cash provided by financing activities during the nine months ended September 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

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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.

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.

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 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.

During the three and nine months ended September 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.

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