Ovid Therapeutics Inc. 10-Q

Item 1. Financial Statements. OVID THERAPEUTICS INC. Condensed Consolidated Balance Sheets September 30, 2023 December 31, 2022 Assets (unaudited) Current assets: Cash and cash equivalents $ 57,436,612 $ 44,867,846 Marketable securities 29,635,075 84,133,565 Prepaid expenses and other current assets 4,641,668 2,379,280 Total current assets 91,713,355 131,380,691 Long-term equity investments 16,124,195 5,622,547 Restricted cash 1,930,753 1,930,753 Right-of-use asset, net 14,155,246 14,922,669 Property and equipment, net 856,491 1,147,963 Other assets 248,651 261,191 Total assets $ 125,028,691 $ 155,265,814 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,216,563 $ 1,952,910 Accrued expenses 6,222,390 4,504,669 Current portion, lease liability 1,224,503 533,946 Total current liabilities 8,663,456 6,991,525 Long-term liabilities: Lease liability 15,073,284 16,001,725 Total liabilities 23,736,740 22,993,250 Stockholders' equity: Preferred stock, $ 0.001 par value; 10,000,000 shares authorized; Series A convertible preferred stock, 10,000 shares designated, 1,250 shares issued and outstanding at September 30, 2023 and December 31, 2022 1 1 Common stock, $ 0.001 par value; 125,000,000 shares authorized; 70,680,551 and 70,466,885 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively 70,681 70,467 Additional paid-in-capital 363,768,613 357,770,825 Accumulated other comprehensive loss ( 3,877 ) ( 42,187 ) Accumulated deficit ( 262,543,467 ) ( 225,526,542 ) Total stockholders' equity 101,291,951 132,272,564 Total liabilities and stockholders' equity $ 125,028,691 $ 155,265,814 See accompanying notes to these unaudited condensed consolidated financial statements 3 Table of Contents OVID THERAPEUTICS INC. Condensed Consolidated Statements of Operations (unaudited) For The Three Months Ended September 30, 2023 For The Three Months Ended September 30, 2022 For The Nine Months Ended September 30, 2023 For The Nine Months Ended September 30, 2022 Revenue: License and other revenue $ 108,972 $ 11,102 $ 250,132 $ 1,456,468 Total revenue 108,972 11,102 250,132 1,456,468 Operating expenses: Research and development 5,332,591 5,183,253 17,945,927 19,062,192 General and administrative 6,805,213 7,631,705 23,397,323 25,769,525 Total operating expenses 12,137,804 12,814,958 41,343,250 44,831,717 Loss from operations ( 12,028,832 ) ( 12,803,856 ) ( 41,093,118 ) ( 43,375,249 ) Other income (expense), net 776,446 836,085 4,076,193 711,009 Loss before provision for income taxes ( 11,252,386 ) ( 11,967,771 ) ( 37,016,925 ) ( 42,664,240 ) Provision for income taxes — — — — Net loss $ ( 11,252,386 ) $ ( 11,967,771 ) $ ( 37,016,925 ) $ ( 42,664,240 ) Net loss per share, basic $ ( 0.16 ) $ ( 0.17 ) $ ( 0.52 ) $ ( 0.61 ) Net loss per share, diluted $ ( 0.16 ) $ ( 0.17 ) $ ( 0.52 ) $ ( 0.61 ) Weighted-average common shares outstanding, basic 70,618,609 70,430,554 70,544,536 70,408,657 Weighted-average common shares outstanding, diluted 70,618,609 70,430,554 70,544,536 70,408,657 See accompanying notes to these unaudited condensed consolidated financial statements 4 Table of Contents OVID THERAPEUTICS INC. Condensed Consolidated Statements of Comprehensive Loss (unaudited) For The Three Months Ended September 30, 2023 For The Three Months Ended September 30, 2022 For The Nine Months Ended September 30, 2023 For The Nine Months Ended September 30, 2022 Net loss $ ( 11,252,386 ) $ ( 11,967,771 ) $ ( 37,016,925 ) $ ( 42,664,240 ) Other comprehensive (loss) income: Unrealized (loss) gain on marketable securities ( 9,085 ) 7,335 38,310 ( 82,792 ) Comprehensive loss $ ( 11,261,471 ) $ ( 11,960,436 ) $ ( 36,978,615 ) $ ( 42,747,032 ) See accompanying notes to these unaudited condensed consolidated financial statements 5 OVID THERAPEUTICS INC. Condensed Consolidated Statements of Stockholders’ Equity (unaudited) Series A Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Shares Amount Shares Amount Balance, December 31, 2022 1,250 $ 1 70,466,885 $ 70,467 $ 357,770,825 $ ( 42,187 ) $ ( 225,526,542 ) $ 132,272,564 Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan — — 24,625 25 66,968 — — 66,993 Stock-based compensation expense — — — — 1,916,518 — — 1,916,518 Other comprehensive income — — — — — 47,817 — 47,817 Net loss — — — — — — ( 13,356,209 ) ( 13,356,209 ) Balance, March 31, 2023 1,250 1 70,491,510 70,492 359,754,310 5,630 ( 238,882,751 ) 120,947,682 Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan — — 112,283 111 210,986 — — 211,097 Stock-based compensation expense — — — — 1,948,648 — — 1,948,648 Other comprehensive loss — — — — — ( 422 ) — ( 422 ) Net loss — — — — — — ( 12,408,330 ) ( 12,408,330 ) Balance, June 30, 2023 1,250 1 70,603,793 70,603 361,913,944 5,208 ( 251,291,081 ) 110,698,675 Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan — — 76,758 78 223,642 — — 223,720 Stock-based compensation expense — — — — 1,631,027 — — 1,631,027 Other comprehensive loss — — — — — ( 9,085 ) — ( 9,085 ) Net loss — — — — — — ( 11,252,386 ) ( 11,252,386 ) Balance, September 30, 2023 1,250 $ 1 70,680,551 $ 70,681 $ 363,768,613 ( 3,877 ) $ ( 262,543,467 ) $ 101,291,951 Series A Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shares Amount Shares Amount Balance, December 31, 2021 1,250 $ 1 70,364,912 $ 70,359 $ 351,033,589 $ — $ ( 171,357,513 ) $ 179,746,436 Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan — — 52,333 14 33,065 — — 33,079 Stock-based compensation expense — — — — 1,324,812 — — 1,324,812 Net loss — — — — — — ( 16,108,056 ) ( 16,108,056 ) Balance, March 31, 2022 1,250 1 70,417,245 70,373 352,391,466 — ( 187,465,569 ) 164,996,271 Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan — — 2,143 41 109,507 — — 109,548 Stock-based compensation expense — — — — 1,720,217 — — 1,720,217 Other comprehensive loss — — — — — ( 90,127 ) — ( 90,127 ) Net loss — — — — — — ( 14,588,414 ) ( 14,588,414 ) Balance, June 30, 2022 1,250 1 70,419,388 70,414 354,221,191 ( 90,127 ) ( 202,053,983 ) 152,147,496 Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan — — 47,497 53 81,576 — — 81,629 Stock-based compensation expense — — — — 1,782,043 — — 1,782,043 Other comprehensive income — — — — — 7,335 — 7,335 Net loss — — — — — — ( 11,967,771 ) ( 11,967,771 ) Balance, September 30, 2022 1,250 $ 1 70,466,885 $ 70,467 $ 356,084,810 $ ( 82,792 ) $ ( 214,021,753 ) $ 142,050,733 See accompanying notes to these unaudited condensed consolidated financial statements 6 Table of Contents OVID THERAPEUTICS INC. Condensed Consolidated Statements of Cash Flows (unaudited) For The Nine Months Ended September 30, 2023 For The Nine Months Ended September 30, 2022 Cash flows from operating activities: Net loss $ ( 37,016,925 ) $ ( 42,664,240 ) Adjustments to reconcile net loss to cash used in operating activities: Non-cash consideration received in licensing agreement transaction — ( 945,366 ) Unrealized (gain) loss on equity investment ( 501,648 ) 125,721 Change in accrued interest and accretion of discount on marketable securities ( 1,535,648 ) ( 821,024 ) Stock-based compensation expense 5,496,194 4,827,072 Depreciation and amortization expense 427,760 327,525 Amortization of right-of-use asset 767,423 614,130 Change in lease liability ( 237,884 ) 650,089 Change in operating assets and liabilities: Prepaid expenses and other current assets ( 2,262,388 ) ( 156,221 ) Security deposit 12,491 56,943 Accounts payable ( 736,347 ) ( 6,093,980 ) Accrued expenses 1,718,358 ( 1,972,044 ) Net cash used in operating activities ( 33,868,614 ) ( 46,051,395 ) Cash flows from investing activities: Purchase of marketable securities ( 53,928,189 ) ( 108,857,928 ) Sales/maturities of marketable securities 110,000,000 30,000,000 Purchase of long-term equity investment ( 10,000,000 ) ( 2,500,000 ) Issuance of convertible short-term note receivable — ( 1,000,000 ) Purchases of property and equipment ( 26,602 ) ( 1,104,440 ) Software development and other costs ( 109,637 ) ( 251,340 ) Net cash provided by (used in) investing activities 45,935,572 ( 83,713,708 ) Cash flows from financing activities: Proceeds from exercise of options and purchases from employee stock purchase plan 501,808 224,257 Net cash provided by financing activities 501,808 224,257 Net increase (decrease) in cash, cash equivalents and restricted cash 12,568,766 ( 129,540,846 ) Cash, cash equivalents and restricted cash, at beginning of period 46,798,599 189,728,285 Cash, cash equivalents and restricted cash, at end of period $ 59,367,365 $ 60,187,439 Non-cash investing and financing activities: Right-of-use asset in exchange for lease liability $ — $ 15,791,769 Conversion of short-term note receivable to long-term equity investment $ — $ 1,000,000 See accompanying notes to these unaudited condensed consolidated financial statements 7 Table of Contents OVID THERAPEUTICS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – NATURE OF OPERATIONS Ovid Therapeutics Inc. (the “Company”) was incorporated under the laws of the state of Delaware and commenced operations on April 1, 2014 and maintains its principal executive office in New York, New York. The Company is a biopharmaceutical company committed to developing medicines that transform the lives of people with epilepsies and seizure-related disorders. Since its inception, the Company has devoted substantially all of its efforts to business development, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of convertible preferred stock, common stock, other equity instruments, the sale and/or licensing of certain assets and the licensing of certain intellectual property. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and the ability to secure additional capital to fund operations. The Company’s major sources of cash have been licensing revenue, proceeds from various public and private offerings of its capital stock, option exercises and interest income. As of September 30, 2023, the Company had approximately $ 87.1 million in cash, cash equivalents and marketable securities. Since inception, the Company has generated $ 222.8 million in revenue, primarily from the Company’s royalty, license and termination agreement (“RLT Agreement”) with Takeda Pharmaceutical Company Limited (“Takeda”). Historically, the Company has incurred recurring losses, has experienced negative operating cash flows and has required significant cash resources to execute its business plans, which the Company expects will continue for the foreseeable future. The Company has an accumulated deficit of $ 262.5 million as of September 30, 2023, working capital of $ 83.0 million and had cash used in operating activities of $ 33.9 million for the nine months ended September 30, 2023. The Company recorded net losses of $ 11.3 million and $ 37.0 million during the three and nine months ended September 30, 2023, respectively, and expects to incur losses in subsequent periods for at least the next several years. The Company is highly dependent on its ability to find additional sources of funding through either equity offerings, debt financings, collaborations, strategic alliances, licensing agreements or a combination of any such transactions. Management believes that the Company’s existing cash, cash equivalents and marketable securities as of September 30, 2023 will be sufficient to fund its current operating plans through at least the next 12 months from the date of filing of the Company’s Quarterly Report on Form 10-Q. Adequate additional funding may not be available to the Company on acceptable terms or at all. The failure to raise capital as and when needed could have a negative impact on the Company’s financial condition and ability to pursue its business strategy. The Company may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain drug candidates that the Company might otherwise seek to develop or commercialize independently. The Company is subject to other challenges and risks specific to its business and its ability to execute on its 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: delays or problems in the supply of the Company's product candidates, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing intellectual property rights; complying with applicable regulatory requirements; and obtaining regulatory approval of any of the Company's product candidates. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 13, 2023. (A) Unaudited Interim Condensed Consolidated Financial Statements The interim condensed consolidated balance sheet at September 30, 2023 and the condensed consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 are unaudited. The accompanying unaudited condensed consolidated financial statements 8 Table of Contents have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and following the requirements of the SEC for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by GAAP are condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information. The results of operations for the three and nine month periods ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period. The balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K. (B) Basis of Presentation and Consolidation The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP and include the accounts of Ovid Therapeutics Inc. and its wholly owned subsidiary, Ovid Therapeutics Hong Kong Limited. All intercompany transactions and balances have been eliminated in consolidation. (C) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ materially from those estimates. (D) Marketable Securities Marketable securities consist of investments in U.S. treasury instruments which are considered available-for-sale securities. The Company classifies its marketable securities with maturities of less than one year from the balance sheet date as current assets on its condensed consolidated balance sheets. The Company classifies its marketable securities with original maturities of less than three months as cash equivalents on its consolidated balance sheets. Unrealized gains and losses on these securities that are determined to be temporary are reported as a separate component of accumulated other comprehensive income (loss) in stockholder's equity. (E) Restricted Cash The Company classifies as restricted cash all cash pledged as collateral to secure long-term obligations and all cash whose use is otherwise limited by contractual provisions. Amounts are reported as non-current unless restrictions are expected to be released in the next 12 months. (F) Long-Term Equity Investments Long-term equity investments consist of equity investments in the preferred shares of Gensaic, Inc., formerly M13 Therapeutics, Inc. (“Gensaic”), and Graviton Bioscience Corporation (“Graviton”), both privately held corporations. The preferred shares are not considered in-substance common stock, and the investments are accounted for at cost, with adjustments for observable changes in prices or impairments, and are classified within long-term equity investments on the consolidated balance sheets with adjustments recognized in other income (expense), net on the condensed consolidated statements of operations. The Company has determined that these equity investments do not have a readily determinable fair value and elected the measurement alternative. Therefore, the carrying amount of the equity investments will be adjusted to fair value at the time of the next observable price change for the identical or similar investment of the same issuer or when an impairment is recognized. Each reporting period, the Company performs a qualitative assessment to evaluate whether the investments are impaired. The assessment includes a review of recent operating results and trends, recent sales/acquisitions of the investees' securities, and other publicly available data. If an investment is determined to be impaired, the Company will then write it down to its estimated fair value. As of September 30, 2023 and December 31, 2022, the equity investment in Gensaic had a carrying value of $ 5.1 million. As of September 30, 2023, the equity investment in Graviton had a carrying value of $ 10.0 million. Long-term equity investments also consist of an equity investment in the common shares of Marinus Pharmaceuticals, Inc. (“Marinus”) that were received as non-cash consideration via the terms of a licensing agreement executed between the two companies effective March 2022. The equity shares are marked-to-market at each reporting date with changes in the fair value being reflected in the carrying value of the investment on the Company's consolidated balance sheets and other income (expense), net on the Company's consolidated statements of operations. As of September 30, 2023 and December 31, 2022, the equity investment in Marinus had a carrying value of approximately $ 1.0 million and $ 0.5 million, respectively. 9 Table of Contents (G) Fair Value of Financial Instruments Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: • Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. The Company’s Level 1 assets consisted of investments in a U.S. treasury money market fund and equity securities totaling $ 37.7 million as of September 30, 2023. The Company's Level 1 assets totaled $ 42.5 million as of December 31, 2022. • Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies. The Company's Level 2 assets consisted of U.S. treasury bills, totaling $ 49.5 million as of September 30, 2023 and $ 84.1 million as of December 31, 2022. • Level 3—Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. There were no Level 3 assets or liabilities as of September 30, 2023 or December 31, 2022. The carrying amounts reported in the balance sheets for cash and cash equivalents, other current assets, accounts payable and accrued expenses approximate their fair value based on the short-term maturity of these instruments. (H) Leases The Company determines if an arrangement is a lease at inception and recognizes the lease in accordance with ASC 842. Operating leases are included in right-of-use (“ROU”) assets, current liabilities, and long-term lease liability in the Company's consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The Company determines the portion of the lease liability that is current as the difference between the calculated lease liability at the end of the current period and the lease liability that is projected 12 months from the current period. (I) Property and Equipment Property and equipment are stated at cost and depreciated over their estimated useful lives of three years using the straight-line method. Repair and maintenance costs are expensed. The Company reviews the recoverability of all long-lived assets, including the related useful life, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. (J) Research and Development Expenses The Company expenses the cost of research and development as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and preclinical materials as well as contracted services, license fees, and other external costs. Research and development expenses also include the cost of licensing agreements acquired from third parties. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received in accordance with ASC 730, Research and Development . (K) Stock-based Compensation The Company accounts for its stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, which establishes accounting for stock-based awards granted to employees for services and requires 10 Table of Contents companies to expense the estimated fair value of these awards over the requisite service period. The Company estimates the fair value of all awards granted using the Black-Scholes valuation model. Key inputs and assumptions include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, stock price and exercise price. Many of the assumptions require significant judgment and any changes could have an impact in the determination of stock-based compensation expense. The Company elected an accounting policy to record forfeitures as they occur. The Company recognizes employee stock-based compensation expense based on the fair value of the award on the date of the grant. The compensation expense is recognized over the vesting period under the straight-line method. The Company accounts for option awards granted to nonemployee consultants and directors in accordance with ASC 718. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock award at the earlier of the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. (L) Income Taxes The Company accounts for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as for net operating loss carryforwards and research and development credits. Valuation allowances are provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of a change in the tax laws is recorded in the period in which the law is enacted. (M) Net Loss per Share Net loss per common share is determined by dividing net loss attributable to common stockholders by the basic and diluted weighted-average common shares outstanding during the period. The Company applies the two-class method to allocate earnings between common stock and participating securities. When applicable, net income per diluted share attributable to common stockholders adjusts the basic earnings per share attributable to common stockholders and the weighted-average number of shares of common stock outstanding for the potential dilutive impact of stock options using the treasury-stock method and the potential impact of preferred stock using the if-converted method. (N) Revenue Recognition Under ASC 606, Revenue from Contracts with Customers, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. In applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) it satisfies the performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services the Company transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Prior to recognizing revenue, the Company makes 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. If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined using expected cost and comparable transactions. Revenue for performance obligations recognized over time is recognized by measuring the progress toward complete satisfaction of the performance obligations using an input measure. Non-refundable upfront fees allocated to licenses that are not contingent on any future performance and require no consequential continuing involvement by the Company, are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. The Company defers recognition of upfront license fees if the performance obligations are not satisfied. 11 Table of Contents (O) Recent Accounting Pronouncements The Company has reviewed recently issued accounting standards and plans to adopt those that are applicable. The Company does not expect the adoption of those standards to have a material impact on its financial position, results of operations, or cash flows. The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date. Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying financial statements. NOTE 3 – CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES The following tables summarize the fair value of cash, cash equivalents and marketable securities as well as gross unrealized holding gains and losses as of September 30, 2023 and December 31, 2022: September 30, 2023 Amortized cost Gross unrealized holding gains Gross unrealized holding losses Fair value Cash $ 809,178 $ — $ — $ 809,178 Cash equivalents (1) 56,626,797 — — 56,626,797 Marketable securities 29,639,590 — ( 3,878 ) 29,635,712 Total cash, cash equivalents and marketable securities $ 87,075,565 $ — $ ( 3,878 ) $ 87,071,687 (1) Cash equivalents as of September 30, 2023 include money market funds of $ 36.7 million. December 31, 2022 Amortized cost Gross unrealized holding gains Gross unrealized holding losses Fair value Cash $ 2,853,042 $ — $ — $ 2,853,042 Money market funds 42,014,804 — — 42,014,804 Marketable securities 84,175,752 — ( 42,187 ) 84,133,565 Total cash, cash equivalents and marketable securities $ 129,043,598 $ — $ ( 42,187 ) $ 129,001,411 The Company did not hold any securities that were in an unrealized loss position for more than 12 months as of September 30, 2023 and December 31, 2022. There were no material realized gains or losses on available-for-sale securities during the three and nine months ended September 30, 2023 and 2022. NOTE 4 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS Property and equipment is summarized as follows: September 30, 2023 December 31, 2022 Furniture and equipment $ 1,449,634 $ 1,423,032 Leasehold improvements 306,312 306,312 Less accumulated depreciation ( 899,455 ) ( 581,381 ) Total property and equipment, net $ 856,491 $ 1,147,963 Depreciation expense was $ 104,323 and $ 102,071 for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense was $ 318,074 and $ 187,541 for the nine months ended September 30, 2023 and 2022, respectively. Intangible assets, net of accumulated amortization, were $ 222,051 and $ 222,100 as of September 30, 2023 and December 31, 2022, respectively, and are included in other assets. Amortization expense was $ 41,316 and $ 53,348 for the 12 Table of Contents three months ended September 30, 2023 and 2022, respectively. Amortization expense was $ 109,686 and $ 139,984 for the nine months ended September 30, 2023 and 2022, respectively. NOTE 5 – LEASES During September 2021, the Company entered into a 10-year lease agreement for its corporate headquarters with a term commencing March 10, 2022, for approximately 19,000 square feet of office space at Hudson Commons in New York, New York. The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently $ 2.3 million per year. Rent payments commenced 10 months following the commencement date of the lease, or January 10, 2023, and continue for 10 years following the rent commencement date. The Company issued a letter of credit in the amount of $ 1.9 million in association with the execution of the lease agreement; the letter of credit is characterized as restricted cash on the Company's condensed consolidated balance sheets. The Hudson Commons lease has a remaining lease term of approximately 9 years and includes a single renewal option for an additional five years . The Company did not include the renewal option in the lease term when calculating the lease liability as the Company is not reasonably certain that it will exercise the renewal option. The present value of the lease payments was calculated using an incremental borrowing rate of 7.02 %. Lease expense is included in general and administrative and research and development expenses in the condensed consolidated statements of operations. ROU asset and lease liabilities related to the Company's operating lease are as follows: September 30, 2023 Right-of-use asset, net $ 14,155,246 Current lease liability 1,224,503 Long-term lease liability $ 15,073,284 The components of operating lease cost for the nine months ended September 30, 2023 were as follows: September 30, 2023 Operating lease cost $ 1,625,425 Variable lease cost — Short-term lease cost — Future minimum commitments under the non-cancelable operating lease are as follows: 2023 579,076 2024 2,316,303 2025 2,316,303 2026 2,316,303 2027 2,316,303 Thereafter 12,347,235 $ 22,191,523 13 Table of Contents NOTE 6 – ACCRUED EXPENSES Accrued expenses consist of the following: September 30, 2023 December 31, 2022 Payroll and bonus accrual $ 3,837,431 $ 3,233,802 Research and development accrual 1,745,068 395,247 Professional fees accrual 395,813 682,664 Other 244,078 192,956 Total $ 6,222,390 $ 4,504,669 NOTE 7 – STOCKHOLDERS’ EQUITY The Company’s capital structure consists of common stock and convertible preferred stock. Pursuant to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to issue up to 125,000,000 shares of common stock and 10,000,000 shares of preferred stock. The Company has designated 1,250 of the 10,000,000 authorized shares of preferred stock as non-voting Series A Convertible Preferred Stock (“Series A Preferred Stock”). The holders of common stock are entitled to one vote for each share held. The holders of common stock have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Subject to preferences that may apply to any outstanding series of preferred stock, holders of the common stock are entitled to receive ratably any dividends declared on a non-cumulative basis. The common stock is subordinate to all series of preferred stock with respect to rights upon liquidation, winding up and dissolution of the Company. The holders of common stock are entitled to liquidation proceeds after all liquidation preferences for the preferred stock are satisfied. There were 1,250 shares of Series A Preferred Stock outstanding as of September 30, 2023 and December 31, 2022. Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock at any time at the holder’s option. However, the holder will be prohibited, subject to certain exceptions, from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than, at the written election of the holder, either 9.99 % or 14.99 % of the total number of shares of common stock then issued and outstanding, which percentage may be changed at the holder’s election to any other number less than or equal to 19.99 % upon 61 days’ notice to the Company; provided, however, that effective 61 days after delivery of such notice, such beneficial ownership limitations shall not be applicable to any holder that beneficially owns either 10.0 % or 15.0 %, as applicable based on the holder’s initial written election noted above, of the total number of shares of common stock issued and outstanding immediately prior to delivery of such notice. In the event of a liquidation, dissolution, or winding up of the Company, holders of Series A Preferred Stock will receive a payment equal to $ 0.001 per share of Series A Preferred Stock before any proceeds are distributed to the holders of common stock. In November 2020, the Company entered into a sales agreement (the “2020 ATM agreement”) with Cowen and Company, LLC (“Cowen”), under which the Company may offer and sell in “at the market offerings,” from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $ 75.0 million through Cowen acting as sales agent. As of September 30, 2023, the Company has not sold any shares of its common stock under the 2020 ATM agreement. Dividends Through September 30, 2023, the Company has not declared any dividends. No dividends on the common stock shall be declared and paid unless dividends on the preferred stock have been declared and paid. NOTE 8 – STOCK-BASED COMPENSATION The Company's Board of Directors adopted, and the Company's stockholders approved, the 2017 Equity Incentive Plan (“2017 Plan”), which became effective on May 4, 2017. The initial reserve of shares of common stock issuable under the 2017 Plan was 3,052,059 shares. The 2017 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of stock-based awards. Additionally, the 2017 Plan provides for the grant of performance cash awards. The Company's employees, officers, directors, consultants and advisors are eligible to receive awards under the 2017 Plan. Following the adoption of the 2017 Plan, no further awards will be granted under the Company’s prior plan. Pursuant to the 14 Table of Contents terms of the 2017 Plan, on each January 1st, the plan limit shall be increased by the lesser of (x) 5 % of the number of shares of common stock outstanding as of the immediately preceding December 31 and (y) such lesser number as the Board of Directors may determine at its discretion. On January 1, 2023 and January 1, 2022 an additional 3,523,344 and 1,000,000 shares, respectively, were reserved for issuance under the 2017 Plan. As of September 30, 2023, there were 4,371,869 shares of the Company’s common stock reserved and available for issuance under the 2017 Plan. The Company's Board of Directors adopted, and the Company's stockholders approved, the 2017 Employee Stock Purchase Plan (“2017 ESPP”), which became effective on May 4, 2017. The initial reserve of shares of common stock issuable under the 2017 ESPP was 279,069 shares. The 2017 ESPP allows employees to purchase common stock of the Company at a 15 % discount to the market price on designated semi-annual purchase dates. During the three months ended September 30, 2023 and 2022, 33,931 and 37,872 shares, respectively, were purchased under the 2017 ESPP, and the Company recorded expense of $ 13,783 and $ 20,687 , respectively. During the nine months ended September 30, 2023 and 2022, 63,761 and 76,455 shares, respectively, were purchased under the 2017 ESPP, and the Company recorded expenses of $ 42,383 and $ 61,882 , respectively. The number of shares of common stock reserved for issuance under the 2017 ESPP automatically increases on January 1 of each year, beginning on January 1, 2018 and continuing through and including January 1, 2027, by the lesser of (i) 1 % of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (ii) 550,000 shares or (iii) such lesser number of shares determined by the Board. The Board acted prior to each of January 1, 2023 and January 1, 2022 to provide that there be no increase in the number of shares reserved for issuance under the 2017 ESPP on either such date. As of September 30, 2023, there were 352,846 shares of the Company’s common stock reserved and available for issuance under the 2017 ESPP. The Company’s Board of Directors adopted and the Company’s stockholder’s approved the 2014 Equity Incentive Plan (“2014 Plan”), which authorized the Company to grant shares of common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units. The 2014 Plan was terminated as to future awards in May 2017, although it continues to govern the terms of options that remain outstanding under the 2014 Plan. No additional stock awards will be granted under the 2014 Plan, and all outstanding stock awards granted under the 2014 Plan that are repurchased, forfeited, expire or are cancelled will become available for grant under the 2017 Plan in accordance with its terms. As of September 30, 2023, options to purchase 1,663,597 shares of common stock were outstanding under the 2014 Plan. Unless specified otherwise in an individual option agreement, stock options granted under the prior plan and the 2017 Plan generally have a ten-year term and a four-year graded vesting period. The vesting requirement is generally conditioned upon the grantee’s continued service with the Company during the vesting period. Once vested, all options granted are exercisable from the date of grant until they expire. The option grants are non-transferable. Vested options generally remain exercisable for 90 days subsequent to the termination of the option holder’s service with the Company. In the event of the option holder’s death or disability while employed by or providing service to the Company, the exercisable period extends to 12 months. Performance-based option awards generally have similar terms, with vesting commencing on the date the performance condition is achieved and expire in accordance with the specific terms of the agreement. At September 30, 2023, there were no performance-based options outstanding. The fair value of options granted during the three and nine months ended September 30, 2023 and 2022 was estimated using the Black-Scholes option valuation model. The inputs for the Black-Scholes option valuation model require significant assumptions that are detailed in the table below. The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin No. Topic 14D. Beginning January 1, 2023, the expected volatility is estimated based on the historical volatility of the Company since the Company's initial public offering. All assumptions used to calculate the grant date fair value of nonemployee options are generally consistent with the assumptions used for options granted to employees. In the event the Company terminates any of its consulting agreements, the unvested options underlying the agreements would also be canceled. The Company granted zero and 70,000 stock options to nonemployee consultants for services rendered during the three and nine months ended September 30, 2023, respectively, and no stock options during the three and nine months ended September 30, 2022. There were 99,792 and 130,834 unvested nonemployee options outstanding as of September 30, 2023 and 2022. Total expense recognized related to nonemployee stock options for the three months ended September 30, 2023 and 2022 was $ 106,032 and $ 106,806 , respectively. Total expense recognized related to nonemployee stock options for the nine months ended September 30, 2023 and 2022, was $ 377,816 and $ 461,913 , respectively. Total unrecognized compensation expenses related to the nonemployee stock options was $ 365,301 as of September 30, 2023. 15 Table of Contents The Company did not recognize any expense for nonemployee performance-based option awards during the nine months ended September 30, 2023 or 2022. The Company granted 4,000 and 266,800 stock options to employees during the three months ended September 30, 2023 and 2022, respectively. The Company granted 2,934,500 and 4,555,641 stock options to employees during the nine months ended September 30, 2023 and 2022, respectively. There were 5,985,002 and 7,010,800 unvested employee options outstanding as of September 30, 2023, and 2022, respectively. Total expense recognized related to the employee stock options for the three months ended September 30, 2023 and 2022 was $ 1.5 million and $ 1.6 million, respectively. Total expense recognized related to the employee stock options for the nine months ended September 30, 2023 and 2022 was $ 5.1 million and $ 4.3 million, respectively. Total unrecognized compensation expense related to employee stock options was $ 10.8 million as of September 30, 2023. No expense for employee performance-based options was recognized during the three and nine months ended September 30, 2023. The Company recognized total expense of $ 94,000 for employee performance-based options during the three and nine months ended September 30, 2022. The Company’s stock-based compensation expense was recognized in operating expenses as follows: Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Research and development $ 345,292 $ 487,368 $ 4,060,725 $ 1,270,244 General and administrative 1,285,736 1,294,675 1,435,469 3,556,828 Total $ 1,631,028 $ 1,782,043 $ 5,496,194 $ 4,827,072 Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Stock options $ 1,617,244 $ 1,761,356 $ 5,453,810 $ 4,765,190 Employee Stock Purchase Plan 13,784 20,687 42,384 61,882 Total $ 1,631,028 $ 1,782,043 $ 5,496,194 $ 4,827,072 The fair value of employee options granted during the three and nine months ended September 30, 2023 and 2022 was estimated utilizing the following assumptions: Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Weighted Average Weighted Average Weighted Average Weighted Average Volatility 83.16 % 86.90 % 84.56 % 87.17 % Expected term in years 6.08 6.08 6.07 6.07 Dividend rate 0.00 % 0.00 % 0.00 % 0.00 % Risk-free interest rate 4.19 % 2.90 % 3.97 % 2.20 % Fair value of option on grant date $ 2.61 $ 1.61 $ 1.92 $ 2.13 16 Table of Contents The fair value of non-employee options granted during the three and nine months ended September 30, 2023 and 2022 was estimated utilizing the following assumptions: Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Weighted Average Weighted Average Weighted Average Weighted Average Volatility — % — % 83.73 % — % Expected term in years 0.00 0.00 5.32 0.00 Dividend rate 0.00 % 0.00 % 0.00 % 0.00 % Risk-free interest rate — % — % 3.86 % — % Fair value of option on grant date $ — $ — $ 2.21 $ — The following table summarizes the number of options outstanding and the weighted average exercise price: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Aggregate Intrinsic Value Options outstanding December 31, 2022 12,961,238 $ 4.13 7.42 $ 62,158 Granted 3,004,500 2.62 9.44 Exercised ( 134,905 ) 2.74 Forfeited or expired ( 665,956 ) 3.52 Options outstanding September 30, 2023 15,164,877 $ 3.86 7.14 $ 11,557,144 Vested and exercisable at September 30, 2023 9,080,083 $ 4.54 6.11 $ 5,268,442 At September 30, 2023 there was approximately $ 11.2 million of unrecognized stock–based compensation expense related to employee and nonemployee grants, which is expected to be recognized over a remaining average vesting period of 2.32 years. NOTE 9 – INCOME TAXES The Company’s interim income tax provision consists of U.S. federal and state income taxes based on the estimated annual effective tax rate that the Company expects for the full year together with the tax effect of discrete items. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. As of September 30, 2023, the Company was in a pre-tax loss position, and is anticipated to remain so throughout the year. For the nine months ended September 30, 2023, the Company did no t record any tax benefit or expense. In assessing the realizability of deferred tax assets, management evaluates whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. Management assesses all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, prior earnings history, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Significant weight is given to positive and negative evidence that is objectively verifiable. Based on these factors, including cumulative losses in recent years, the Company continues to maintain a full valuation allowance against its net deferred tax assets as of September 30, 2023. 17 Table of Contents NOTE 10 – COMMITMENTS AND CONTINGENCIES License Agreements Northwestern University License Agreement In December 2016, the Company entered into a license agreement with Northwestern University, (“Northwestern”), pursuant to which Northwestern granted the Company an exclusive, worldwide license to patent rights of certain inventions (“Northwestern Patent Rights”) which relate to a specific compound and related methods of use for such compound, along with certain Know-How related to the practice of the inventions claimed in the Northwestern Patents. The Company is developing OV329 under this agreement. Under the Northwestern agreement, the Company was granted exclusive rights to research, develop, manufacture and commercialize products utilizing the Northwestern Patent Rights for all uses. The Company has agreed that it will not use the Northwestern Patent Rights to develop any products for the treatment of cancer, but Northwestern may not grant rights in the technology to others for use in cancer. The Company also has an option, exercisable during the term of the agreement to an exclusive license under certain intellectual property rights covering novel compounds with the same or similar mechanism of action as the primary compound that is the subject of the license agreement. Northwestern has retained the right, on behalf of itself and other non-profit institutions, to use the Northwestern Patent Rights and practice the inventions claimed therein for educational and research purposes and to publish information about the inventions covered by the Northwestern Patent Rights. Upon entry into the Northwestern agreement, the Company paid an upfront non-creditable one-time license issuance fee of $ 75,000 , and is required to pay an annual license maintenance fee of $ 20,000 , which will be creditable against any royalties payable to Northwestern following first commercial sale of licensed products under the agreement. The Company is responsible for all ongoing costs of filing, prosecuting and maintaining the Northwestern Patents, but also has the right to control such activities using its own patent counsel. In consideration for the rights granted to the Company under the Northwestern agreement, the Company is required to pay to Northwestern up to an aggregate of $ 5.3 million upon the achievement of certain development and regulatory milestones for the first product covered by the Northwestern Patents, and upon commercialization of any such products, will be required to pay to Northwestern a tiered royalty on net sales of such products by the Company, its affiliates or sublicensees, at percentages in the low to mid-single-digits, subject to standard reductions and offsets. The Company’s royalty obligations continue on a product-by-product and country-by-country basis until the later of the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country and 10 years following the first commercial sale of such product in such country. If the Company sublicenses a Northwestern Patent Right, it will be obligated to pay to Northwestern a specified percentage of sublicense revenue received by the Company, ranging from the high single digits to the low-teens. The Northwestern agreement requires that the Company use commercially reasonable efforts to develop and commercialize at least one product that is covered by the Northwestern Patent Rights. Unless earlier terminated, the Northwestern agreement will remain in force until the expiration of the Company’s payment obligations thereunder. The Company has the right to terminate the agreement for any reason upon prior written notice or for an uncured material breach by Northwestern. Northwestern may terminate the agreement for the Company’s uncured material breach or insolvency. AstraZeneca AB License Agreement On December 30, 2021, the Company entered into an exclusive license agreement with AstraZeneca AB (“AstraZeneca”), for a library of early-stage small molecules targeting the KCC2 transporter, including lead candidate OV350. Upon execution of the agreement, the Company was obligated to pay an upfront cash payment of $ 5.0 million and issued shares of the Company's common stock in an amount that equaled $ 7.3 million based on the volume-weighted average price of shares of the Company's common stock for the 30 business days immediately preceding the execution date of the transaction. Since the intangibles acquired in the AstraZeneca license agreement do not have an alternative future use, all costs incurred were treated as research and development expense. The Company recorded a total of $ 12.3 million as research and development expense related to this agreement during December 2021. Pursuant to the AstraZeneca license agreement, the Company agreed to potential milestone payments of up to $ 203.0 million upon the achievement of certain developmental, regulatory and sales milestones. The first payment of $ 3.0 million is due upon the successful completion of the first Phase 2 clinical study of a licensed product following a positive biomarker readout in a Phase 1 clinical study. Gensaic Collaboration and Option Agreement 18 Table of Contents In August 2022, the Company entered into a collaboration and option agreement (“Collaboration Agreement”) with Gensaic. The Collaboration Agreement involves the research and development of phage-derived particle (“PDP”) products on Gensaic’s proprietary platform for certain central nervous system rare disorder targets. Under the Collaboration Agreement, Gensaic grants the Company an exclusive option to obtain an exclusive license with respect to certain identified lead PDP products, which are exercisable at any time prior to the expiration of the option period. Once a product is identified by the Company that demonstrates sufficient efficacy, the Company may exercise its option with respect to the specific research program for that PDP product. The Company shall reimburse Gensaic for Gensaic’s research costs related to the specific research plan for PDP products identified; the research plan and budget shall be mutually agreed upon by the parties and shall not exceed $ 3.0 million in any research year. The Company will record these reimbursement payments as research and development costs in the period the research costs are incurred. In May 2023, the Company identified a lead PDP candidate for further research and provided $ 3.5 million to Gensaic to support the approved research plan and budget. The amount is expensed as the research and development occurs with the remaining amount included in prepaid expenses and other current assets in the condensed consolidated balance sheets. If a product is ultimately commercialized under this agreement, the Company shall make tiered royalty payments to Gensaic in the mid-single to low double-digit range based on the net sales of all licensed PDP products during the royalty term. The Company is also responsible for potential tiered milestone payments of up to $ 452.0 million based upon the achievement of certain sales milestone events and developmental milestone approvals for three or more products. Gensaic also has the option to become a collaborative partner in the development and commercialization of PDP products in exchange for a fee based on a percentage of the costs incurred by the Company through the date Gensaic exercises its option. The Company would no longer be required to pay Gensaic royalty or milestone payments if Gensaic elects to exercise its option. The Company may terminate this agreement by providing written notice to Gensaic 90 days in advance of the termination date. As of September 30, 2023, none of these contingent payments were considered probable. Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company is not currently involved in any legal matters arising in the normal course of business. Under the terms of their respective employment agreements, certain of our executive officers are eligible to receive severance payments and benefits upon a termination without “cause” or due to “permanent disability,” or upon “resignation for good reason,” contingent upon the executive officer’s delivery to the Company of a satisfactory release of claims, and subject to the executive officer’s compliance with non-competition and non-solicitation restrictive covenants. NOTE 11 – COLLABORATION AND LICENSE AGREEMENTS Takeda Collaboration On January 6, 2017, the Company entered into a license and collaboration agreement with Takeda under which the Company licensed from Takeda certain exclusive rights to develop and commercialize soticlestat in certain territories. In March 2021, the Company entered into the RLT Agreement, pursuant to which Takeda secured rights to the Company’s 50 % global share in soticlestat, and the Company granted to Takeda an exclusive worldwide license under the Company’s relevant intellectual property rights to develop and commercialize the investigational medicine soticlestat for the treatment of developmental and epileptic encephalopathies, including Dravet syndrome and Lennox-Gastaut syndrome. Under the RLT Agreement, all rights in soticlestat are owned by Takeda or exclusively licensed to Takeda by the Company. Takeda assumed all responsibility for, and costs of, both development and commercialization of soticlestat, and the Company no longer has any financial obligation to Takeda under the original collaboration agreement, including milestone payments or any future development and commercialization costs. On March 29, 2021 upon the closing of the RLT Agreement, the Company received an upfront payment of $ 196.0 million and, if soticlestat is successfully developed, will be eligible to receive up to an additional $ 660.0 million upon Takeda achieving developmental, regulatory and sales milestones. In addition, the Company will be entitled to receive tiered royalties beginning in the low double-digits, and up to 20 % on sales of soticlestat if regulatory approval is achieved. Royalties will be payable on a country-by-country and product-by-product basis for any indications that soticlestat is approved for and sold during the period beginning on the 19 Table of Contents date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale. During the nine months ended September 30, 2023, no expense was recognized pursuant to the RLT Agreement. Healx License and Option Agreement On February 1, 2022, the Company entered an exclusive license option agreement (“Healx License and Option Agreement”) with Healx, Ltd. (“Healx”). Under the terms of the Healx License and Option Agreement, Healx has secured a one-year option to investigate gaboxadol (“OV101”) as part of a potential combination therapy for Fragile X syndrome in a Phase 1B/2A clinical trial, as well as a treatment for other indications, for an upfront payment of $ 0.5 million, and fees to support prosecution and maintenance of our relevant intellectual property rights. At the end of the one-year option period, Healx has the option to secure rights to an exclusive license under the Company's relevant intellectual property rights, in exchange for an additional payment of $ 2.0 million, development and commercial milestone payments, and low to mid-tier double digit royalties. On February 1, 2023, the Company granted an extension of the option period for up to four months for Healx to continue to investigate gaboxadol. Royalties are payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale. Healx will assume all responsibility for, and costs of, both development and commercialization of gaboxadol following the exercise of the option. The Company will retain the option to co-develop and co-commercialize the program with Healx (“Ovid Opt-In Right”) at the end of a positive readout of clinical Phase 2B and would share net profits and losses in lieu of the milestones and royalty payments. If the Ovid Opt-In Right were exercised, the Company would be required to pay Healx 50 % of development costs. The Company does not plan to conduct further trials of gaboxadol. The term of the Healx License and Option Agreement will continue until the later of (a) the expiration of all relevant royalty terms, or in the event that Healx does not exercise its option during the option period defined in the Healx License and Option Agreement, or the Option Period, the expiration of such period, or (b) in the event that Healx does exercise its option during the Option Period, and the Company does not exercise the Ovid Opt-In Right during the period of time it has to opt-in, or the Opt-In Period, or the opt-in terms are otherwise terminated, upon the expiration of all payment obligations, or (c) in the event that Healx does exercise the Option during the Option Period, and the Company does exercise the Ovid Opt-In Right during the Opt-In Period, such time as neither Healx nor the Company is continuing to exploit gaboxadol. Further, if the Company exercises the Ovid Opt-In Right to co-develop and co-commercialize the program, it will owe a share of the net profit share to a third party with which it previously established a licensing agreement. If the Company does not exercise the Ovid Opt-In Right, it will owe the third party a share of all milestone and royalty payments. On June 9, 2023, the Company entered into an amendment to the Healx License and Option Agreement whereby revisions were made to terms regarding the timing of the option exercise fee payable by Healx to the Company, the clinical and regulatory milestone payment structure, and the royalty payment structure. Additionally, the parties agreed that following the exercise of the option, Healx would assume direct responsibility for patent maintenance and prosecution and that the Company would transfer to Healx all supply obligations with respect to the active pharmaceutical ingredient and finished gaboxadol products and any related licensed technology and know-how in the Company's possession that is relevant to the manufacture of such licensed products. No revenue was recognized relating to this agreement during the nine months ended September 30, 2023. During the nine months ended September 30, 2022, the Company recorded revenue of $ 0.5 million associated with the Healx License and Option Agreement. Marinus Pharmaceuticals Out-License Agreement On March 1, 2022, the Company entered into an exclusive patent license agreement with Marinus (“Marinus License Agreement”). Under the Marinus License Agreement, the Company granted Marinus an exclusive, non-transferable (except as expressly provided therein), royalty-bearing right and license under certain Ovid patents relating to ganaxolone to develop, make, have made, commercialize, promote, distribute, sell, offer for sale and import licensed products in the territory (which consist of the United States, the European Economic Area, United Kingdom and Switzerland) for the treatment of CDKL5 deficiency disorders. Following the date of regulatory approval by the FDA of the first licensed product in the territory which was received on March 18, 2022, Marinus issued, at the Company's option, 123,255 shares of Marinus common stock, par value $ 0.001 per share, as payment. The Marinus License Agreement also provides for payment of royalties from Marinus to the Company in single digits on net sales of each such licensed product sold. The Company recorded revenue and an associated investment in equity securities of approximately $ 0.9 million related to the patent license agreement on March 18, 2022, based on the price of Marinus common stock on March 1, 2022. 20 Table of Contents The Company had unrealized gains on the Marinus common stock of $ 0.1 million and unrealized losses of $ 0.1 million for the nine months ended September 30, 2023 and 2022, respectively, which were recorded as unrealized gains (losses) on equity securities and are reflected in other income (expense), net in the condensed consolidated statements of operations. Graviton License Agreement and Equity Purchase On April 30, 2023, the Company entered into a collaboration and license agreement with Graviton (“Graviton Agreement”), whereby it secured from Graviton an exclusive license to develop and commercialize Graviton's library of ROCK2 inhibitors including their lead program GV101 in rare central nervous system (“CNS”) disorders (excluding amyotrophic lateral sclerosis) worldwide (excluding China, Hong Kong, Macau and Taiwan). Under the Graviton Agreement, the Company and Graviton plan to investigate GV101 in cerebral cavernous malformations as well as Graviton's library of ROCK2 inhibitors in other rare CNS disorders. The Company will be responsible for all development and commercialization costs of the products. Should the Company receive regulatory approval and commercialize any of Graviton’s ROCK2 inhibitors, it will pay Graviton tiered royalties on net sales ranging from the mid to high teens. As part of the Graviton Agreement, the Company also purchased shares of Graviton's preferred stock for $ 10.0 million. The Company recorded the purchase of the preferred stock as a long-term equity investment on its condensed consolidated balance sheets. NOTE 12 – RELATED PARTY TRANSACTIONS In March 2021, the Company entered into the RLT Agreement with Takeda. For a description of the RLT Agreement, see Note 11. NOTE 13 – NET LOSS PER SHARE Basic net loss per share is calculated based upon the weighted-average number of common shares outstanding during the period, excluding outstanding stock options that have not yet vested. For any period in which the Company records net income, diluted net income per share is calculated based upon the weighted-average number of common shares outstanding during the period plus the dilutive impact of weighted-average common equivalent shares outstanding during the period resulting from the assumed exercise of outstanding stock options determined under the treasury stock method and the assumed conversion of preferred stock into common shares determined using the if-converted method. Diluted net loss per share is equivalent to the basic net loss per share due to the exclusion of outstanding stock options and convertible preferred stock because the inclusion of these securities would result in an anti-dilutive effect on per share amounts. The basic and diluted net loss per common share is presented in conformity with the two-class method required for participating securities and multiple classes of shares. The Company considers its preferred stock to be participating securities. For any period in which the Company records net income, undistributed earnings allocated to the participating securities are subtracted from net income in determining net income attributable to common stockholders. The undistributed earnings have been allocated based on the participation rights of preferred stock and common shares as if the earnings for the year have been distributed. For periods in which the Company recognizes a net loss, undistributed losses are allocated only to common shares as the participating securities do not contractually participate in the Company’s losses. Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Participating securities are excluded from basic weighted-average common shares outstanding. 21 Table of Contents The following table summarizes the calculation of basic and diluted net loss per share: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Net loss $ ( 11,252,386 ) $ ( 11,967,771 ) $ ( 37,016,925 ) $ ( 42,664,240 ) Net loss attributable to participating securities — — — — Net loss attributable to common stockholders $ ( 11,252,386 ) $ ( 11,967,771 ) $ ( 37,016,925 ) $ ( 42,664,240 ) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Net loss attributable to common stockholders $ ( 11,252,386 ) $ ( 11,967,771 ) $ ( 37,016,925 ) $ ( 42,664,240 ) Weighted average common shares outstanding used in computing net loss per share - basic 70,618,609 70,430,554 70,544,536 70,408,657 Weighted average common shares outstanding used in computing loss per share - diluted 70,618,609 70,430,554 70,544,536 70,408,657 Net loss per share, basic $ ( 0.16 ) $ ( 0.17 ) $ ( 0.52 ) $ ( 0.61 ) Net loss per share, diluted $ ( 0.16 ) $ ( 0.17 ) $ ( 0.52 ) $ ( 0.61 ) The following potentially dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as they would be anti-dilutive: For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Stock options to purchase common stock 15,164,877 13,013,259 15,164,877 13,013,259 Common stock issuable upon conversion of Series A convertible preferred stock 1,250,000 1,250,000 1,250,000 1,250,000 NOTE 14 – SUBSEQUENT EVENT On October 17, 2023, the Company entered into a purchase and sale agreement (the “Ligand Agreement”) with Ligand Pharmaceuticals Incorporated (“Ligand”) for the sale to Ligand of a 13 % interest in the potential royalties and milestone payments owed to the Company under the RLT Agreement related to the potential approval and commercialization of soticlestat. Under the Ligand Agreement, Ligand paid the Company $ 30 million, less $ 100,000 of reimbursable expenses. The Company retains an 87 % interest in such potential royalty and milestone payments. The Company expects to account for the transaction in accordance with ASC 470. 22 Table of Contents