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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-03 · 51 added, 93 removed, 177 unchanged (45% of the section changed)

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

We are a biopharmaceutical company committed to developing medicines that transform the lives of people with epilepsies and seizure-related disorders in a manner that is scientifically driven and patient focused.

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

We are a biopharmaceutical company committed to developing medicines that transform the lives of people with certain epilepsies and brain conditions with seizure symptoms in a manner that is scientifically driven and patient focused.

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

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

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Such experience includes many approved anti-seizure medicines.

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

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

Two of our three programs are in clinical trials.

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

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

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

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

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

Through March 31, 2024, we have raised net proceeds of $275.4 million from the sale of our capital stock.

We have also, in previous periods, generated revenue through license and collaboration agreements, including $196.0 million from the RLT Agreement and $30.0 million from the Ligand Agreement.

As of March 31, 2024, we had $90.3 million in cash, cash equivalents and marketable securities and an accumulated deficit of $289.6 million.

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

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In connection with Takeda's second quarter earnings announcement in October 2023, Takeda reiterated the anticipated timeline for regulatory filing of the two pivotal Phase 3 trials evaluating soticlestat for Lennox-Gastaut and Dravet syndromes are expected in Takeda’s 2024 fiscal year.

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

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

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

Under the royalty, license and termination agreement ( “ RLT Agreement ” ) with Takeda, if soticlestat is successfully approved and commercialized, we are eligible to receive up to $660 million in regulatory and commercial milestones and tiered royalties up to 20% on all indications and regions.

In October 2023, we entered into the purchase and sale agreement (“Ligand Agreement”) for the sale to Ligand Pharmaceuticals Incorporated (“Ligand”) of a 13% interest in the potential milestone and royalty payments that we are eligible to receive under the RLT Agreement.

Under the Ligand Agreement, Ligand paid us $30.0 million, less $100,000 of reimbursable expenses.

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

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

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

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

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

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

We subsequently guided that we will be adding a transcranial

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

We subsequently guided that we will be adding a transcranial magnetic stimulation to the Phase 1 study to serve as a second biomarker for efficacy in addition to measuring target engagement via magnetic resonance spectroscopy.

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

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

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

Additionally, we announced plans to develop an intravenous ( “IV” ) formulation of OV329 for potential use in acute

seizures based upon emerging evidence that GABA-AT inhibition may be effective in the treatment of status epilepticus.

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

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

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

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

An IV formulation of OV350 is progressing toward an anticipated IND in the second half of 2024.

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

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

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

Significant Risks and Uncertainties

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Results of Operations

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

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

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

(in thousands)

License and other revenue $ 109 $ 11 $ 98

Total revenue 109 11 98

Operating expenses:

Research and development 5,333 5,183 150

General and administrative 6,805 7,632 (827)

Total operating expenses 12,138 12,815 (677)

Loss from operations (12,029) (12,804) 775

Other income (expense), net 776 836 (60)

Loss before provision for income taxes (11,253) (11,968) 715

Provision for income taxes — — —

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

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

Research and Development Expenses

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

(in thousands)

Preclinical and development expenses $ 2,140 $ 2,164 $ (24)

Payroll and payroll-related expenses 2,297 2,208 89

Other expenses 895 812 83

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

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

General and Administrative Expenses

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

(in thousands)

Payroll and payroll-related expenses $ 3,567 $ 3,973 $ (406)

Legal and professional fees 1,908 1,484 424

General office expenses 1,330 2,175 (844)

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

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

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

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

Other Income (Expense), net

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

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

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

Comparison of the Three Months Ended March 31, 2024 and 2023

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

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

(in thousands)

(in thousands) Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Change $

License and other revenue $ 148 $ 66 $ 82

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Net loss $ (11,694) $ (13,356) $ 1,662

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

Royalty revenue of $148,000 and $66,000 was recorded in the three months ended March 31, 2024 and 2023, respectively.

Research and Development Expenses

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

(in thousands)

(in thousands) Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Change $

Preclinical and development expenses $ 6,697 $ 2,983 $ 3,714

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Total research and development $ 10,397 $ 6,615 $ 3,782

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

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

During the three months ended March 31, 2024, total research and development expenses were $10.4 million, compared to $6.6 million for the same period in 2023.

The increase of $3.8 million primarily relates to expenses associated with the acceleration of clinical development in OV329 and OV888 (GV101).

General and Administrative Expenses

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

(in thousands)

(in thousands) Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Change $

Payroll and payroll-related expenses $ 3,891 $ 4,746 $ (855)

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Total general and administrative $ 7,168 $ 7168 $ 8,344 $ (1,175)

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

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

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

General and administrative expenses were $7.2 million and $8.3 million for the three months ended March 31, 2024 and 2023, respectively.

The decrease of $1.2 million between periods was due to reduction in force of general and administrative roles during the second quarter of 2023 as well as strategic cost-reduction initiatives.

Other Income (Expense), net

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

Other income, net for the nine months ended September 30, 2023 was $4.1 million compared to $0.7 million for the same period in 2022.

The increase of $3.4 million is primarily due to interest and accretion on investments in marketable securities on such investments that began in the second half of 2022.

Other income (expense), net for the three months ended March 31, 2024 and 2023 includes unrealized gain (loss) on long-term equity investments and interest earned and accretion of discount on marketable securities.

Other income (expense), net for the three months ended March 31, 2024 and 2023 was $5.7 million and $1.5 million, respectively.

The increase of $4.2 million is primarily due to unrealized gain recorded on long-term equity investments.

Liquidity and Capital Resources

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

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

As of March 31, 2024, we had total cash, cash equivalents and marketable securities of $90.3 million.

We believe that our cash, cash equivalents and marketable securities as of March 31, 2024 will fund our projected operating expenses and capital expenditure requirements for at least 12 months from the issuance of this Quarterly Report on Form 10-Q.

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

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

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

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

We recorded net losses of approximately $11.7 million and $13.4 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, we had an accumulated deficit of $289.6 million and working capital of $84.3 million.

Future Funding Requirements

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

As of September 30, 2023, we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancellable, purchase order basis.

As of March 31, 2024, we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancellable, purchase order basis.

We cannot estimate whether we will receive or the timing of any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable.

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

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

Payment obligations under the lease agreement include approximately $1.9 million in the 12 months subsequent to March 31, 2024 and approximately $22.5 million over the remaining term of the agreement.

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

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Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

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

There can be no assurance that such financings will be obtained on terms acceptable to

us, if at all.

Additionally, inflation rates have increased recently to levels not seen in decades, contributing to the ongoing economic slowdown.

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In November 2023, 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 (“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 September 30, 2023, we had up to $250.0 million available under our S-3 Registration Statement, including up to $75.0 million available pursuant to our ATM offering program.

333-275307) to replace our prior registration statement that was set to expire.

The replacement registration statement 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 March 31, 2024, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.

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

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

(in thousands)

(in thousands) Three Months Ended March 31, 2024 Three Months Ended March 31, 2023

Net cash (used in) provided by:

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Financing activities 228 67

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 12,568 $ (129,541)

Net increase in cash, cash equivalents, and restricted cash $ 3,731 $ 18,184

Net Cash Used In Operating Activities

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

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

Net Cash Provided By (Used In) Investing Activities

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

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

Net cash used in operating activities was $16.7 million for the three months ended March 31, 2024, which consisted of a net loss of $11.7 million offset by non-cash charges and changes in operating assets and liabilities, primarily related to $2.0 million of stock-based compensation expense.

Net cash used in operating activities was $12.1 million for the three months ended March 31, 2023, which consisted of net loss of $13.4 million offset by a net of $1.2 million of non-cash charges and changes in operating assets and liabilities, primarily related to $1.9 million of stock-based compensation expense.

Net Cash Provided By Investing Activities

Net cash provided by investing activities was $20.2 million and $30.2 million for the three months ended March 31, 2024 and 2023, respectively, which was due to maturity of marketable securities during the periods.

Net Cash Provided By Financing Activities

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

Net cash provided by financing activities during the three months ended March 31, 2024 and 2023 resulted from proceeds from the exercise of stock options and employee stock purchase plan.

Smaller Reporting Company Status

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We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

As a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

periodic reports and proxy statements.

We have elected to adopt the accommodations available to smaller reporting companies, including but not limited to:

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

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of

which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources.

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

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

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

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

In addition, see Note 2 of our Condensed Consolidated Financial Statements under the heading “Recent Accounting Pronouncements” for new accounting pronouncements or changes to the accounting pronouncements during the three and nine months ended September 30, 2023.

During the three months ended March 31, 2024, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2023 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 8, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis