What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-08 compared with 2023-03-13 · 70 added, 73 removed, 161 unchanged (47% 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 focused on drug discovery and development for epilepsies and rare CNS 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.

Ovid has set out to be a leader in the field, and has 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 that are the cause of seizures.

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

We are a biopharmaceutical company dedicated to meaningfully improving the lives of people affected by certain epilepsies and brain conditions with seizure symptoms.

Our approach to achieve this goal is scientifically driven, patient focused, and coupled with an integrated and disciplined approach to research, clinical development and business development.

Our team has significant experience with and understanding of rare epilepsies and neurological conditions, and we continue to gain insight into the ways 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 four novel mechanisms of action to target different causes of certain epilepsies and brain conditions with seizure symptoms.

We have built a scalable scientific platform with efficient development capabilities in epilepsies and conditions with seizure symptoms that focuses on clear, clinical endpoints.

Three of our programs are in clinical trials in humans, and the fourth is in preclinical development and anticipated to advance into human safety studies in 2024.

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.

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

Our cohesive focus in certain epilepsies and brain conditions with seizure symptoms reinforces our belief that we can develop and produce multiple novel medicines, scale our infrastructure, and thereby succeed in our mission.

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

During the years ended December 31, 2022 and 2021, we generated $1.5 million and $208.4 million of license and other revenue, respectively.

The revenue generated in the year ended December 31, 2021 was primarily through the license and collaboration agreement with Takeda.

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

Through December 31, 2022, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and common stock.

During the years ended December 31, 2023 and 2022, we generated $0.4 million and $1.5 million of royalty and licensing revenue, respectively.

We have otherwise primarily funded our business through the sale of our capital stock and through the closing of the RLT Agreement with Takeda, which resulted in a one-time up-front payment of $196.0 million in 2021.

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

As of December 31, 2023, we had $105.8 million in cash, cash equivalents and marketable securities.

We recorded a net loss of $54.2 million and net income of $122.8 million for the years ended December 31, 2022 and 2021, respectively.

We recorded net loss of $52.3 million and $54.2 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, we had an accumulated deficit of $277.9 million.

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Significant Risks and Uncertainties

The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with 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 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.

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

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

High interest rates also present a recent challenge impacting the U.S.

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

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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Financial Operations Overview

We generated revenue under the RLT Agreement and under the Angelini License Agreement, as well as nominal amounts from other licensing agreements.

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 or if we become entitled to revenue from our licensing agreements.

We have generated revenue primarily under the RLT Agreement, as well as nominal amounts from other licensing agreements and royalties.

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

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.

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Costs incurred in connection with research and development activities are expensed as incurred.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of

specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.

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

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General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation expense, related to our executive, finance, business development and support functions.

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

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

Other Income (Expense), net

Other income (expense), net consists primarily of interest income earned on our cash, cash equivalents and marketable securities and accretion of discount on our short-term investments.

Reclassifications

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

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

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

Results of Operations

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

Year Ended December 31, 2022 Year Ended December 31, 2021 Change $

Year Ended December 31, 2023

Year Ended December 31, 2022

(in thousands)

License and other revenue $ 392 $ 1,503 $ (1,111)

License revenue - related party — 196,000 (196,000)

Total revenue 392 1,503 (1,111)

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Total operating expenses 59,673 57,051 2,622

(Loss) income from operations (55,548) 124,209 (180,148)

Loss from operations (59,281) (55,548) (3,733)

Other income (expense), net 6,943 1,379 5,563

(Loss) income before provision for income taxes (54,169) 124,163 (178,723)

Loss before provision for income taxes (52,339) (54,169) 1,830

Provision for income taxes — — —

Net (loss) income $ (54,169) $ 122,834 $ (177,394)

Revenue of $1.5 million for the year ended December 31, 2022 related to licensing and other agreements.

Revenue was $208.4 million for the year ended December 31, 2021 as a result of the RLT Agreement and the termination of the Angelini License Agreement.

Net loss $ (52,339) $ (54,169) $ 1,830

Revenue of $0.4 million was recognized for the year ended December 31, 2023 related to royalties.

Revenue was $1.5 million for the year ended December 31, 2022 related to licensing and other agreements.

Research and Development Expenses

Year Ended December 31, 2022 Year Ended December 31, 2021 Change $

Year Ended December 31, 2023

Year Ended December 31, 2022

(in thousands)

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Research and development expenses were $28.6 million for the year ended December 31, 2023 compared to $24.6 million for the year ended December 31, 2022.

The decrease of $22.3 million was primarily due to a decrease in activities related to our ongoing development programs, including the termination of the development of OV101 and the transfer of the development of OV935, which was assumed by Takeda, partially offset by $12.3 million in expenses relating to the licensing of small molecule KCC2 compounds from AstraZeneca in 2021.

During the year ended December 31, 2022, research and development expenses consisted of $9.7 million in preclinical and development expenses, $11.5 million in payroll and payroll-related expenses, of which $1.8 million related to stock-based compensation, and $3.4 million in other expenses.

During the year ended December 31, 2021, research and development expenses consisted of $30.4 million in preclinical and development expenses, $13.5 million in payroll and payroll-related expenses, of which $1.7 million related to stock-based compensation, and $3.1 million in other expenses.

The increase of $4.9 million in preclinical and development expenses was due to additional activities related to our ongoing development programs, primarily relating to OV888 (GV101) and OV329.

The decrease of $1.0 million in payroll and payroll-related expenses was primarily due to the impact of a reorganization in early 2022 which resulted in approximately $1.0 million in severance costs during the period.

General and Administrative Expenses

Year Ended December 31, 2022 Year Ended December 31, 2021 Change $

Year Ended December 31, 2023

Year Ended December 31, 2022

(in thousands)

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General and administrative expenses were $31.1 million for the year ended December 31, 2023 compared to $32.4 million for the year ended December 31, 2022.

The decrease of $4.4 million was primarily due to reduced legal and professional fees, partially offset by an increase in non-cash compensation expenses, and increased expenses related to the new office lease.

The provision recorded for income taxes for the years ended December 31, 2022 and 2021 is zero and $1.3 million, respectively, with effective rates of 0.00% and 1.07%, respectively.

The provision for income taxes in 2021 was due to the significant one-time, upfront payment from Takeda pursuant to the RLT Agreement, as well as disallowed use of net operating losses.

We have historically incurred operating losses and maintain a full valuation allowance against net deferred tax assets.

The valuation allowance was approximately $73.7 million and $63.3 million at December 31, 2022 and 2021, respectively.

The decrease of $1.3 million was primarily due to reduced legal and professional fees and general office expenses, partially offset by an increase in non-cash compensation expenses.

Other Income (Expense), net

Other income (expense), net was $6.9 million for the year ended December 31, 2023, comprised of $4.9 million in interest and accretion income on investments in U.S.

treasuries and $2.0 million of unrealized gain on long-term equity investments.

For the year ended December 31, 2022, other income (expense), net of $1.4 million was comprised of $1.8 million in interest and accretion income on investments in U.S.

treasuries and $0.4 million of unrealized loss on long-term equity investments.

Liquidity and Capital Resources

As of December 31, 2022, we had total cash, cash equivalents and marketable securities of $129.0 million as compared to $187.8 million of cash and cash equivalents as of December 31, 2021.

As of December 31, 2023 and 2022, we had total cash, cash equivalents and marketable securities of $105.8 million and $129.0 million, respectively.

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

Similar to other development-stage biotechnology companies, we have generated limited revenue.

Revenue in the year ended December 31, 2021 was primarily due to a significant one-time, upfront payment from Takeda pursuant to the RLT Agreement.

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

We incurred net losses of approximately $54.2 million and net income of approximately $122.8 million for the years ended December 31, 2022 and 2021, respectively.

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

We incurred net losses of $52.3 million and $54.2 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, we had an accumulated deficit of $277.9 million and working capital of $98.1 million.

Future Funding Requirements

We believe that our available cash, cash equivalents and marketable securities are sufficient to fund existing and planned cash requirements into the first quarter of 2025.

We believe that our available cash, cash equivalents and marketable securities are sufficient to fund existing and planned cash requirements into the first half of 2026.

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

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

As of December 31, 2022, we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis.

We cannot estimate whether we will receive or the timing of any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property as contractual obligations or commitments, including agreements with AstraZeneca AB and Northwestern.

Pursuant to these license

agreements, we have agreed to make milestone payments up to an aggregate of $279.3 million upon the achievement of certain development, regulatory and sales milestones.

As of December 31, 2023, we had no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis.

Pursuant to these license agreements, we have agreed to make milestone payments up to an aggregate of $660.3 million upon the achievement of certain development, regulatory and sales milestones.

We excluded these contingent payments from the consolidated financial statements given that the timing, probability, and amount, if any, of such payments cannot be reasonably estimated at this time.

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

We have no products approved for commercial sale and have not generated any product revenues from product sales to date.

We have no products approved for commercial sale and have not generated any revenues from product sales to date.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings and additional funding from license and collaboration arrangements.

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

Additionally, while the long-term economic impact of either the COVID-19 pandemic or the conflict between Russia and Ukraine is difficult to assess or predict, each of these events has caused significant disruptions to the global financial markets and contributed to a general global economic slowdown.

Additionally, while the long-term economic impact of geopolitical tensions, including the war between Russia and Ukraine and war in Israel, is difficult to assess or predict, each of these events has caused significant disruptions to the global financial markets and contributed to a general global economic slowdown.

Furthermore, inflation rates have increased recently to levels not seen in decades.

In addition, the U.S.

Federal Reserve has raised, and is expected to further raise, interest rates in response to concerns about inflation.

Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks.

Federal Reserve has raised interest rates in response to concerns about inflation.

High interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks.

If the disruptions and slowdown deepen or persist, we may not be able to access additional capital on favorable terms, or at all, which could in the future negatively affect our ability to pursue our business strategy.

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

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

As of December 31, 2022, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.

333-250054) (the “Prior S-3 Registration Statement”).

In November 2023, upon expiration of the of the Prior Registration Statement, we filed a new shelf registration statement on Form S-3 (Registration No.

333-275307) that allows us to sell up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities and/or warrants (the “Current 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, including the unsold securities under the Prior Registration Statement.

During the years ended December 31, 2023 and 2022, we did not sell any shares under our ATM program.

As of December 31, 2023, we had $250.0 million available under our Current S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.

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

Year Ended December 31, 2022 Year Ended December 31, 2021

Year Ended December 31, 2023

Year Ended December 31, 2022

(in thousands)

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Financing activities 30,535 181

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (142,930) $ 117,694

Net Cash (Used in) Provided by Operating Activities

Net cash used in operating activities was $55.2 million for the year ended December 31, 2022, which consisted of net loss of $54.2 million offset by a net of $1.0 million of various non-cash charges and operating cash changes, most significantly $6.6 million in stock-based compensation and an $8.3 million decrease in accounts payable and accrued expenses.

Net cash provided by operating activities was $118.6 million for the year ended December 31, 2021, which consisted of net income of $122.8 million offset by various non-cash charges and cash changes, primarily related to $12.3 million related to an asset acquisition via stock issuance and cash, stock-based compensation expense of $5.0 million, and $12.4 million of deferred revenue reversal.

Net decrease in cash, cash equivalents, and restricted cash $ (17,827) $ (142,930)

Net Cash Used in Operating Activities

Net cash used in operating activities was $45.8 million for the year ended December 31, 2023, which consisted of net loss of $52.3 million offset by a net of $6.6 million of various non-cash charges and operating cash changes, most significantly $7.3 million in stock-based compensation.

Net cash used in operating activities was $55.2 million for the year ended December 31, 2022, which consisted of net loss of $54.2 million and $8.3 million decrease in accounts payable and accrued expenses, partially offset by various non-cash charges and cash changes.

Net Cash Used in Investing Activities

Net cash used in investing activities was $87.9 million for the year ended December 31, 2022, which was primarily related to our net investment in U.S.

Net cash used in investing activities was $2.6 million for the year ended December 31, 2023, which was primarily related to our purchases and sales/maturities of investments in U.S.

treasury funds and the purchase of a long-term equity investment.

For the year ended December 31, 2021, $1.8 million was used in investing activities, primarily comprised of the purchase of a long-term equity investment.

For the year ended December 31, 2022, $87.9 million was used in investing activities, primarily comprised of purchases and sales/maturities of investments in U.S.

treasury funds.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $0.2 million and $0.9 million for the years ended December 31, 2022 and 2021, respectively, primarily related to proceeds from the exercise of options and purchases made under the employee stock purchase plan.

Net cash provided by financing activities was $30.5 million for the year ended December 31, 2023, which was primarily due to the $30.0 million received in connection with the Ligand Agreement.

For the same period in 2022, cash provided by financing activities was $0.2 million, related to proceeds from the exercise of options and purchases made under the employee stock purchase plan.

Critical Accounting Estimates and Policies

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

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

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

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

On an ongoing basis, we evaluate our estimates and judgments.

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Revenue Recognition

We recognize revenue under sublicense agreements in accordance with ASC 606, Revenue Recognition, which is applicable to the Angelini License Agreement and the RLT Agreement.

We recognize revenue under sublicense agreements in accordance with ASC 606, Revenue Recognition, which is applicable to the RLT Agreement.

The terms of the agreements within this scope may contain multiple performance obligations, including but not limited to licenses and research and development activities.

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

For the RLT Agreement that closed on March 29, 2021, we received an upfront payment of $196.0 million.

We determined that the transaction price was equal to the upfront fee of $196.0 million and was associated with several material conditions that were satisfied at the closing date.

We recognized the full upfront payment of $196.0 million as revenue at the closing date upon the satisfaction of the material conditions outlined in the termination agreement.

On March 29, 2021, we received a notice of termination of the Angelini License Agreement.

Subsequently, we and Angelini mutually agreed to waive the six-month termination notice provisions and the Angelini License Agreement terminated effective March 31, 2021.

We have been released from our performance obligations and will not be entitled to any future milestone payments under the Angelini License Agreement.

As a result of being released from the performance obligations, we recognized $12.4 million of revenue at the termination date, consisting of $5.4 million of license revenue related to ongoing trials and $7.0 million related to the potential 35% funding of the cost for Angelini's future trials.

During the year ended December 31, 2022, we recognized revenue of approximately $1.5 million related to licensing agreements we entered into during the period.

During the year ended December 31, 2023, we recognized revenue of approximately $0.4 million related to royalty agreements.

Research and Development Accrual

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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-K

Item 7. Management’s Discussion and Analysis