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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-03 · 118 added, 201 removed, 151 unchanged (68% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on March 17, 2021.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 and set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a clinical-stage biopharmaceutical company translating genetic insights into the development of therapies for central nervous system, or CNS, disorders characterized by neuronal imbalance.

Normal brain function requires a delicate balance of excitation and inhibition in neuronal circuits, which, when dysregulated, leads to abnormal function and disease.

We are applying insights from genetic epilepsies to broader neurological and psychiatric disorders, using our understanding of shared biological targets and circuits in the brain.

We are a clinical-stage biopharmaceutical company translating genetic insights into the development of therapies for central nervous system, or CNS, disorders characterized by neuronal excitation-inhibition imbalance.

Normal brain function requires a delicate balance of excitation and inhibition in neuronal circuits, which, when dysregulated, can lead to abnormal function and disease.

We are applying insights from genetic epilepsies to both rare and more prevalent neurological and psychiatric disorders, using our understanding of shared biological targets and circuits in the brain.

We apply a deliberate and pragmatic precision approach, leveraging a suite of translational tools including novel transgenic and predictive translational animal models and electrophysiology markers, to enable an efficient path to proof-of-concept in patients.

Through this approach, we have established a broad portfolio, including multiple disclosed programs across CNS disorders, including depression, epilepsy, movement disorders and pain syndromes, with three clinical-stage product candidates.

We expect multiple topline clinical trial readouts from all three programs in the next year and anticipate the launch of a new clinical development program in the next year.

We intend to develop differentiated therapies that can deliver long-term benefits to human health by meaningfully impacting patients and society.

Our most advanced clinical program, PRAX-114, is an extrasynaptic GABAA receptor preferring positive allosteric modulator, or PAM, for the treatment of patients suffering from major depressive disorder, or MDD, and

for the treatment of women with menopausal and mood symptoms.

We completed a multi-cohort, three-part Phase 2a clinical trial in Australia for PRAX-114, in which Parts A and C of the trial treated patients with MDD while Part B focused on patients with perimenopausal depression, or PMD.

For all parts of the trial, PRAX-114 was generally well-tolerated.

In Parts A and C, we observed marked improvements in depression scores in MDD patients within two weeks of treatment that were maintained throughout the treatment period.

In Part B, we observed improvements in both menopausal and mood symptoms, with mean decreases from baseline at Day 15 of 60% in frequency of moderate-to-severe hot flashes, 68% in the total score of the Perimenopausal Depression Questionnaire, 47% in the Hamilton Depression Rating Scale total score, 65% in the Hamilton Anxiety Rating Scale total score, and 40% in the total score of the Symptoms of Depression Questionnaire, with values trending toward baseline following discontinuation of PRAX-114.

We expect to disclose plans for the Phase 2b study in the fourth quarter of 2021.

Our second clinical program, PRAX-944, is a potentially differentiated selective small molecule inhibitor of T-type calcium channels for the treatment of ET.

We are currently conducting a Phase 2a proof-of-concept, open-label trial in ET patients.

Preliminary site data from six participants in the low dose cohort showed tremor reduction, which compares favorably to the standard of care agents and historical placebo response.

Based on the observed safety profile in the healthy volunteer titration study and the safety and preliminary efficacy data in ET participants administered up to 40mg daily, we added a second cohort to the ongoing ET Phase 2a trial where patients will be titrated to a dose of up to 120mg/day of PRAX-944.

We expect preliminary open-label safety, tolerability and efficacy data from the second dose cohort in the Phase 2a trial in the fourth quarter of 2021, followed by topline data in the first half of 2022, which is expected to include data from the randomized withdrawal phase of the study.

We also completed dosing in a two-part Phase 1 study to explore a faster titration regimen, which is designed to evaluate the safety, tolerability and PK of titrating PRAX-944 up to 120 mg in a 10-day regimen in participants aged 18 to 54 years (Part A) and 55 to 75 years (Part B).

In addition, we initiated the PRAX-944 Phase 2b Essential1 Study for treatment of ET and expect topline results in the second half of 2022.

The Essential1 Study is a placebo-controlled, dose-ranging clinical trial designed to evaluate the safety, tolerability and efficacy of PRAX-944 at 20, 60 or 120 mg per day.

We also intend to initiate a Phase 2 trial to evaluate the safety, PK and efficacy of PRAX-944 as a non-dopaminergic treatment for the motor symptoms of Parkinson’s disease in the first half of 2022.

Our most advanced rare disease product candidate and third clinical program, PRAX-562, is the first selective persistent sodium current blocker in development for the treatment of a broad range of rare, devastating CNS disorders, such as rare adult cephalgias and severe pediatric epilepsies.

We completed the dosing and safety follow-up period for the single ascending dose and multiple ascending dose cohorts up to 150 mg and 120 mg, respectively, in a Phase 1 healthy volunteer study.

PRAX-562 was well-tolerated, with no clinically significant safety findings.

In this study, we used auditory steady state response, or ASSR, as an exploratory electroencephalogram, or EEG, biomarker to determine the doses required to achieve pharmacological blockade of persistent sodium current, which we believe is a potential indicator of efficacy in patients.

We observed dose-related changes and a reduction in ASSR of greater than 50% after 14 days with daily dosing, as compared to baseline.

Based on the observed signal in the ASSR marker in the Phase 1 study, we have started dosing patients in the United States in a Phase 1, placebo-controlled, two-cohort EEG study to validate the observed signal, and we expect topline data in the first half of 2022.

The study is intended to evaluate ASSR as a biomarker for the PRAX-562 program to further support selection of therapeutic dose levels in Phase 2 studies.

We intend to initiate the first proof-of-concept trial of PRAX-562 in patients with rare adult cephalgias, including Short-lasting Unilateral Neuralgiform headache attacks with Conjunctival injection and Tearing, Short-lasting Unilateral Neuralgiform headache with Autonomic symptoms, and Trigeminal Neuralgia in the fourth quarter of 2021.

We also plan to initiate a Phase 2 trial for treatment of developmental epileptic encephalopathies, or DEEs, in the first half of 2022.

The FDA has granted both rare pediatric disease and orphan drug designations for PRAX-562 for the treatment of SCN2A and SCN8A developmental epileptic encephalopathies, or SCN2A-DEE and SCN8A-DEE, respectively.

In addition to our clinical programs, we have multiple disclosed preclinical and discovery product candidates in development for severe genetic epilepsies and multiple undisclosed preclinical and discovery product candidates for a range of CNS disorders.

Our most advanced preclinical stage program is PRAX-222, an antisense oligonucleotide, or ASO, designed to decrease the expression levels of the protein encoded by the gene SCN2A in patients with gain-of-function mutations in SCN2A causing developmental epileptic encephalopathy.

We completed the Investigational New Drug enabling toxicology study for PRAX-222 and plan to initiate regulatory submissions in order to begin a Phase 1/2 trial for treatment of SCN2A-DEE in the first half of 2022.

The FDA has granted both rare pediatric disease and orphan drug designations for PRAX-222 for the treatment of SCN2A-DEE.

We have one disclosed discovery program in development for KCNT1 related epilepsy, and in March 2021 we entered into an innovative research collaboration with The Florey Institute of Neuroscience and Mental Health to develop three additional novel ASOs for the treatment of patients with severe genetic epilepsies, including a novel approach targeting SCN2A loss-of-function mutations.

Through this approach, we have established a broad CNS portfolio with multiple programs, including product candidates across psychiatric disorders, movement disorders and epilepsy, with three clinical-stage product candidates.

Each of our clinical-stage product candidates is advancing in more than one indication and we anticipate expansion into additional indications.

We expect multiple topline readouts from our clinical-stage programs and anticipate the launch of two additional clinical development programs this year.

In addition, we have established a robust pipeline of preclinical stage programs through internal research and in-licensing.

Our broad portfolio of CNS programs is currently structured by therapeutic focus in three franchises – Psychiatry, Movement Disorders and Epilepsy.

Within our Psychiatry franchise, our most advanced clinical candidate, PRAX-114, is being developed for the treatment of a broad range of patients suffering from major depressive disorder, or MDD, and post-traumatic stress disorder, or PTSD.

We have completed the Aria Study, a Phase 2/3, placebo-controlled study evaluating PRAX-114 for monotherapy treatment of MDD, and expect to report topline results in June 2022.

Following topline results from the Aria Study, we intend to engage with the U.S.

Food and Drug Administration, or FDA, for an end-of-Phase 2 meeting and subsequently initiate a Phase 3, placebo-controlled study in the fourth quarter of 2022.

We also expect to report topline results from the Acapella Study, a Phase 2, placebo-controlled, dose-ranging study evaluating PRAX-114 for treatment of MDD, in the third quarter of 2022.

In addition, we expect to report topline results from a Phase 2, placebo-controlled study evaluating PRAX-114 for the treatment of PTSD in the second half of 2022.

Within our Movement Disorders franchise, our second clinical candidate, PRAX-944, is being developed for the treatment of Essential Tremor, or ET, and Parkinson's Disease, or PD.

In May 2022, we reported positive topline results from the second cohort of our Phase 2a trial evaluating PRAX-944 for the treatment of ET.

We expect to report topline results from the Phase 2b placebo-controlled Essential1 Study for daytime treatment of ET in the second half of 2022.

Following the topline results from the second cohort, Part B, of the Phase 2a study of PRAX-944 for the treatment of ET, we intend to change the primary endpoint of the Essential1 Study from safety to efficacy.

We also initiated a Phase 2, placebo-controlled, crossover study to evaluate the safety, pharmacokinetics, or PK, and efficacy of daytime dosing of PRAX-114 for the treatment of ET in the first quarter of 2022 and expect to report topline results in the second half of 2022.

In addition, the FDA cleared the Investigational New Drug, or IND, submission for a Phase 2 study of PRAX-944 for the treatment of PD.

We intend to initiate a Phase 2, placebo-controlled trial to evaluate the safety, PK and efficacy of PRAX-944 as a non-dopaminergic treatment for the motor symptoms of PD in the second half of 2022.

Within our Epilepsy franchise, we expect to initiate a Phase 2, placebo-controlled study with our third clinical-stage candidate, PRAX-562, in the second half of 2022 for the treatment of rare pediatric Developmental and Epileptic Encephalopathies.

Our most advanced preclinical stage product candidate within our Epilepsy franchise,

PRAX-222, is an antisense oligonucleotide, or ASO, designed to decrease the expression levels of the protein encoded by the gene SCN2A in patients with gain-of-function SCN2A mutations.

In April 2022, we announced that we received an email communication from the FDA that our IND application for the first-in-patient study of PRAX-222 was place on clinical hold.

The letter detailing the reasons for the hold is expected to be received from the FDA within 30 days of April 28, 2022.

We expect to initiate a Phase 1 study with our preclinical candidate, PRAX-628, in the fourth quarter of 2022 and subsequently initiate a Phase 2 study in focal epilepsy in 2023.

Our preclinical pipeline also consists of discovery programs in development for KCNT1 related epilepsy, three ASOs targeting SCN2A in patients with loss-of-function mutations, PCDH19 and SYNGAP1, respectively, and three additional discovery programs for undisclosed targets in psychiatry, movement disorders and epilepsy.

We plan to declare ASO candidates for PRAX-080 for PCDH19 and PRAX-090 for SYNGAP1 in 2023.

We were incorporated in 2015 and commenced operations in 2016.

Since inception, we have devoted substantially all of our resources to developing our preclinical and clinical product candidates, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations.

We employ a “virtual” research and development model, relying heavily upon external consultants, collaborators and contract research organizations to conduct our preclinical and clinical activities.

Since inception, we have financed our operations primarily with proceeds from the issuances of convertible debt, redeemable convertible preferred stock, and common stock from our initial public offering, or IPO, in October 2020 and follow-on public offering in May 2021.

On May 18, 2021, we completed a follow-on public offering in which we issued and sold 5,750,000 shares of our common stock at a public offering price of $18.25 per share, including 750,000 shares of common stock issued and sold pursuant to the underwriters' exercise, in full, of their option to purchase additional shares of common stock, for aggregate gross proceeds of $104.9 million.

We received approximately $98.4 million in net proceeds after deducting discounts, commissions, and offering expenses payable by us.

Since inception, we have devoted substantially all of our resources to developing our preclinical and clinical product candidates, building our intellectual property, or IP, portfolio, business planning, raising capital and providing general and administrative support for these operations.

We employ a “virtual” research and development model, relying heavily upon external consultants, collaborators and contract research organizations, or CROs, to conduct our preclinical and clinical activities.

Since inception, we have financed our operations primarily with proceeds from the sale and issuance of equity securities.

We are a development stage company and we have not generated any revenue from product sales, and do not expect to do so for several years, if at all.

All of our programs are still in preclinical and clinical development.

All of our product candidates are still in preclinical and clinical development.

Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved.

We have incurred recurring operating losses since inception, including a net loss of $108.5 million for the nine months ended September 30, 2021.

As of September 30, 2021, we had an accumulated deficit of $258.0 million.

We have incurred recurring operating losses since inception, including a net loss of $68.7 million for the three months ended March 31, 2022.

As of March 31, 2022, we had an accumulated deficit of $385.3 million.

We expect to incur significant expenses and operating losses for the foreseeable future as we expand our research and development activities.

In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and

development activities.

We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

• advance our lead product candidates, PRAX-114 and PRAX-944, to and through late stage clinical trials;

• advance our PRAX-562 product candidate to Phase 2 clinical trials;

• advance our preclinical programs to clinical trials;

In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We anticipate that our expenses will be maintained or increased in connection with our ongoing activities, as we:

• advance our lead product candidates, PRAX-114 and PRAX-944, to late stage clinical trials;

• advance our PRAX-562 product candidate to Phase 2 clinical trial;

• advance our PRAX-222 product candidate to clinical trials;

• advance our preclinical candidates to clinical trials;

• further invest in our pipeline;

• further invest in our manufacturing capabilities;

• seek regulatory approval for our investigational medicines;

• maintain, expand, protect and defend our intellectual property portfolio;

• seek regulatory approval for our product candidates;

• maintain, expand, protect and defend our IP portfolio;

• acquire or in-license technology;

• secure facilities to support continued growth in our research, development and commercialization efforts;

• take temporary precautionary measures to help minimize the risk of COVID-19 to our employees;

• increase our headcount to support our development efforts and to expand our clinical development team.

• incur additional costs and general and administrative headcount growth associated with our continued operations as a public company;

• incur additional costs as a public company as we transition out of emerging growth company and smaller reporting company status at the end of 2021.

In addition, as we progress toward potential marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

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If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.

Even if we are able to generate product sales, we may not become profitable.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of September 30, 2021, we had cash, cash equivalents and marketable securities of $314.4 million.

We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2023.

As of March 31, 2022, we had cash, cash equivalents and marketable securities of $222.5 million.

We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditures into the third quarter of 2023.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

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COVID-19 Business Update

In light of the ongoing COVID-19 pandemic, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business, including our preclinical studies and clinical trials.

We are continuing to operate during this period and have taken measures to secure our research and development activities.

While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition and results of operations could be

materially adversely affected.

In light of the ongoing COVID-19 pandemic, we continue to experience some disruptions and increased risk in our operations and those third parties upon whom we rely.

These include disruptions and risks related to the conduct of our clinical trials and preclinical studies as policies at various clinical sites and federal, state, local and foreign laws, rules and regulations continue to evolve, including quarantines, travel restrictions and redirection of healthcare resources toward pandemic response efforts.

The COVID-19 pandemic has impacted the enrollment of some of our ongoing clinical trials, including slower patient enrollment and treatment in some of our clinical studies, the impact of which has varied by clinical study and program, but none of which have significantly impacted our overall clinical trial timelines.

While we have experienced limited financial impacts to date, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic such as increased inflation, our business, financial condition and results of operations could be materially adversely affected.

We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans, clinical development plans and response strategy.

In addition, while we have taken and are continuing to take steps to mitigate against possible delays, our planned clinical trials may be affected by the COVID-19 pandemic, including (i) delays or difficulties in enrolling and retaining patients in our planned clinical trials, including patients that may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services;

(ii) delays or difficulties in clinical site initiation, including difficulties in recruiting and retaining clinical site investigators and clinical site staff;

(iii) diversion or prioritization of healthcare resources away from the conduct of clinical trials and towards the COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials, and because, who, as healthcare providers, may have heightened exposure to COVID-19 and adversely impact our clinical trial operations;

(iv) interruption of our future clinical supply chain or key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal, state/provincial or municipal governments, employers and others;

and (v) limitations in outsourced third-party resources that would otherwise be focused on the conduct of our planned clinical trials, including because of sickness of third-party personnel or their families, or the desire of third-party personnel to avoid contact with large groups of people.

Financial Operations Overview

We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for several years, if at all.

If our development efforts for our current or future product candidates are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties.

Operating Expenses

Research and Development Expenses

Research and Development Expense

The nature of our business and primary focus of our activities generate a significant amount of research and development costs.

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• discovery efforts leading to development candidates;

• clinical development costs for our programs;

• clinical development costs for our product candidates;

• costs to develop our manufacturing technology and infrastructure.

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• personnel-related expenses, including salaries, benefits and stock-based compensation expense;

• expenses incurred under agreements with third parties, such as consultants, investigative sites and contract research organizations, that conduct our preclinical and clinical studies and in-licensing arrangements;

• expenses incurred under agreements with third parties, such as consultants, investigative sites and CROs, that conduct our preclinical and clinical studies and in-licensing arrangements;

• costs incurred to maintain compliance with regulatory requirements;

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We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites.

Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated balance sheets as prepaid

expenses or accrued research and development expenses.

Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated balance sheets as prepaid expenses or accrued expenses.

Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development.

The capitalized amounts are expensed as the related goods are delivered or the services are performed.

A significant portion of our research and development costs have been external costs.

We track direct external research and development expenses to specific programs upon commencement.

Due to the number of ongoing programs and our ability to use resources across several projects, indirect or shared operating costs incurred for our research and development programs, such as personnel, facility costs and certain consulting costs, are not recorded or maintained on a program-specific basis.

Our major programs, PRAX-114, PRAX-944 and PRAX-562, are those for which we have initiated clinical activities.

Our discovery-stage programs are those which are at an earlier point in the development process.

The following table reflects our research and development expenses, including direct program-specific expenses summarized by major program, discovery-stage program costs and indirect or shared operating costs recognized as research and development expenses during each period presented (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

As a company operating in a virtual environment, a significant portion of our research and development costs have been external costs.

We track direct external research and development expenses to specific franchises and product candidates upon commencement.

Due to the number of ongoing studies and our ability to use resources across several projects, indirect or shared operating costs incurred for our research and development franchises, such as personnel, facility costs and certain consulting costs, are not recorded or maintained on a franchise-specific basis.

The following table reflects our research and development expenses, including direct expenses summarized by major franchise and other exploratory CNS indications and indirect or shared operating costs recognized as research and development expenses during each period presented (in thousands):

Three Months Ended March 31,

$ 14,438 $ 3,201

PRAX-114 $ 8,776 $ 4,077 $ 18,567 $ 9,137

PRAX-944 5,682 1,707 10,015 3,284

PRAX-562 3,104 885 9,256 2,527

Discovery-stage programs 5,099 2,154 12,689 4,050

Movement disorders

Other exploratory CNS indications 2,191 663

Personnel-related (including stock-based compensation) 11,141 6,505

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• the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;

• our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved;

• our ability to obtain and maintain patent, trade secret and other IP protection and regulatory exclusivity for our product candidates, if approved;

• our receipt of marketing approvals from applicable regulatory authorities;

• our ability to commercialize products, if and when approved, whether alone or in collaboration with others;

• our ability to commercialize products, if approved, whether alone or in collaboration with others;

• the continued acceptable safety profiles of the product candidates following approval.

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We may never obtain regulatory approval for any of our product candidates.

Drug commercialization will take several years and millions of dollars in development costs.

General and Administrative Expenses

Drug commercialization will take several years and require significant development costs.

General and Administrative Expense

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for personnel in our executive, finance, legal, commercial and administrative functions.

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professional fees for accounting, auditing, tax and administrative consulting services;

commercial-related costs to support market assessments and scenario planning;

insurance costs;

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and facility-related expenses, which include direct depreciation costs and allocated expenses for office rent and other operating costs.

These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.

Costs to secure and defend our intellectual property, or IP, are expensed as incurred and are classified as general and administrative expenses.

These costs relate to the operation of the business, unrelated to the research and development function, or any individual franchises or product candidate.

Costs to secure and defend our IP are expensed as incurred and are classified as general and administrative expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates.

We also expect to incur increased expenses associated with being a public company, particularly when we are no longer an emerging growth company or a smaller company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs.

We also expect to incur additional IP-related expenses as we file patent applications to protect innovations arising from our research and development activities.

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Our income tax provision may be significantly affected by changes to our estimates.

The income tax benefit (provision) for the three and nine months ended September 30, 2021 and 2020 was not material.

The income tax benefit (provision) for the three months ended March 31, 2022 and 2021 was not material.

Results of Operations

Comparison of the Three Months Ended September 30, 2021 and 2020

The following table summarizes our consolidated statements of operations for each period presented (in thousands):

Three Months Ended

September 30, Change

Operating expenses:

Research and development $ 33,139 $ 12,786 $ 20,353

General and administrative 11,634 3,431 8,203

Total operating expenses 44,773 16,217 28,556

Loss from operations (44,773) (16,217) (28,556)

Total other income:

Other income, net 73 1 72

Total other income 73 1 72

Loss before income taxes (44,700) (16,216) (28,484)

Provision for income taxes (5) — (5)

Net loss $ (44,705) $ (16,216) $ (28,489)

Research and Development Expense

The following table summarizes our research and development expenses for each period presented, along with the changes in those items (in thousands):

Three Months Ended

September 30, Change

PRAX-114 $ 8,776 $ 4,077 $ 4,699

PRAX-944 5,682 1,707 3,975

PRAX-562 3,104 885 2,219

Discovery-stage programs 5,099 2,154 2,945

Personnel-related (including stock-based compensation) 8,334 3,098 5,236

Other indirect research and development expenses 2,144 865 1,279

Total research and development expenses $ 33,139 $ 12,786 $ 20,353

Research and development expenses increased approximately $20.4 million from approximately $12.8 million for the three months ended September 30, 2020 to $33.1 million for the three months ended September 30, 2021.

The increase in research and development expenses was primarily attributable to the following:

• $5.2 million increase in personnel-related costs due to increased headcount, including an increase of $2.4 million in stock-based compensation expense;

• $4.7 million increase in expense related to our PRAX-114 program, driven by an increase in clinical-related and toxicology spend for our Phase 2/3 clinical trial for this program;

• $4.0 million increase in expense related to our PRAX-944 program, driven primarily by an increase in toxicology and clinical-related spend;

• $2.9 million increase in expense related to our discovery-stage programs, primarily driven by an increase in preclinical activities for such programs;

• $2.2 million increase in expense related to our PRAX-562 program, primarily driven by an increase in spend to support our upcoming clinical trails;

• $1.3 million increase in other indirect research and development expenses, driven by an increase in facility and other allocated overhead costs primarily attributable to increased research and development headcount and our new office location, as well as an increase in technology spend.

General and Administrative Expense

General and administrative expenses increased $8.2 million from $3.4 million for the three months ended September 30, 2020 to $11.6 million for the three months ended September 30, 2021.

The increase in general and administrative expenses was primarily attributable to the following:

• $4.7 million increase in personnel-related costs, primarily driven by increased headcount, including an increase of $3.2 million in stock-based compensation expense;

• $1.8 million increase in professional fees, including $1.0 million of increased commercial-related spend to support assessments of our clinical-stage programs, a $0.3 million increase in general and administrative infrastructure costs and a $0.3 million increase in audit and legal fees;

• $1.7 million increase in other general and administrative expenses, including a $1.1 million increase in insurance and related costs, primarily due to becoming a public company, and a $0.2 million increase in technology related costs.

Other income for the three months ended September 30, 2021 and 2020, comprised of interest income on our cash, cash equivalents and marketable securities and investment premium and discount amortization, was not material.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Comparison of the Three Months Ended March 31, 2022 and 2021

The following table summarizes our consolidated statements of operations for each period presented (in thousands):

Nine Months Ended

September 30, Change

Three Months Ended March 31, Change

Operating expenses:

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Total other income 132 46 86

Loss before income taxes (108,474) (36,122) (72,352)

Benefit from (provision for) income taxes (5) 8 (13)

Net loss $ (68,717) $ (27,373) $ (41,344)

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The following table summarizes our research and development expenses for each period presented, along with the changes in those items (in thousands):

Nine Months Ended

September 30, Change

PRAX-114 $ 18,567 $ 9,137 $ 9,430

PRAX-944 10,015 3,284 6,731

PRAX-562 9,256 2,527 6,729

Discovery-stage programs 12,689 4,050 8,639

Three Months Ended March 31, Change

$ 14,438 $ 3,201 $ 11,237

14,264 4,926 9,338

Movement disorders

9,104 1,577 7,527

Other exploratory CNS indications 2,191 663 1,528

Personnel-related (including stock-based compensation) 11,141 6,505 4,636

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Total research and development expenses $ 52,652 $ 17,929 $ 34,723

Research and development expenses increased approximately $48.0 million from $28.7 million for the nine months ended September 30, 2020 to $76.7 million for the nine months ended September 30, 2021.

The increase in research and development expenses was primarily attributable to the following:

• $14.1 million increase in personnel-related costs primarily due to increased headcount, including an increase of $6.5 million in stock-based compensation expense;

• $9.4 million increase in expense related to our PRAX-114 program, driven by an increase in toxicology and clinical-related spend for our Phase 2/3 clinical trial for this program;

• $8.6 million increase in expense related to our discovery-stage programs, primarily driven by an increase in preclinical activities for such programs;

• $6.7 million increase in expense related to our PRAX-944 program, driven primarily by an increase in toxicology and clinical-related spend;

• $6.7 million increase in expense related to our PRAX-562 program, primarily driven by an increase in toxicology and clinical-related spend;

• $2.4 million increase in other indirect research and development expenses, driven by an increase in facility and other allocated overhead costs primarily attributable to increased research and development headcount, as well as an increase in technology spend.

The $34.7 million increase in research and development expenses was primarily attributable to the following:

• $11.2 million increase in expense related to our psychiatry franchise, driven primarily by an increase in clinical-related spend for our PRAX-114 Phase 2/3 Aria and Acapella clinical trials which were initiated in the first quarter and second quarter of 2021, respectively;

• $9.3 million increase in expense related to our epilepsy franchise, driven primarily by an increase in clinical-related spend to support the initiation of our PRAX-562 Phase 2 developmental epileptic encephalopathies clinical trial and our anticipated PRAX-222 seamless clinical trial, an increase in clinical-related spend for our PRAX-562 Phase 1 clinical trial, an increase in preclinical activities for our earlier stage assets, and the payment of a $2.0 million license fee to Ionis Pharmaceuticals, Inc.

in January of 2022 upon exercise of our exclusive option to obtain the rights and license to further develop and commercialize PRAX-222;

• $7.5 million increase in expense related to our movement disorders franchise, driven primarily by an increase in clinical-related spend for our PRAX-944 Phase 2 Essential1 clinical trial;

• $4.6 million increase in personnel-related costs due to increased headcount;

• $1.5 million increase in other exploratory CNS indications, driven primarily by clinical-related expenses for a planned Phase 2 trial in rare adult cephalgias which we have determined not to pursue, as well as increased preclinical activities for our earlier stage assets;

• $0.5 million increase in other indirect research and development expenses, driven primarily by an increase in technology spend and related consulting costs to support our expanding operations.

General and Administrative Expense

General and administrative expenses increased approximately $24.4 million from $7.6 million for the nine months ended September 30, 2020 to $31.9 million for the nine months ended September 30, 2021.

The increase in general and administrative expenses was primarily attributable to the following:

• $13.1 million increase in personnel-related costs, primarily driven by increased headcount, including an increase of $8.7 million in stock-based compensation expense;

• $6.3 million increase in professional fees, including $3.5 million of increased commercial-related spend to support assessments of our clinical-stage programs, a $1.1 million increase in audit and legal fees and a $0.9 million increase in general and administrative infrastructure costs;

• $4.9 million increase in other general and administrative expenses, including a $3.2 million increase in insurance and related costs due to becoming a public company, a $0.7 million increase in donations and sponsorships and a $0.5 million increase in technology spend.

Other income for the nine months ended September 30, 2021 and 2020, comprised of interest income on our cash, cash equivalents and marketable securities and investment premium and discount amortization, was not material.

The $6.7 million increase in general and administrative expenses was primarily attributable to the following:

• $5.0 million increase in personnel-related costs, driven primarily by increased headcount, including an increase of $2.4 million in stock-based compensation expense;

• $1.7 million increase in other general and administrative expenses, none of which were individually significant.

Other income for the three months ended March 31, 2022 and 2021 was comprised of interest income on our cash, cash equivalents and marketable securities and investment premium and discount amortization.

Liquidity and Capital Resources

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We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all.

To date, we have financed our operations primarily with proceeds from the sale and issuance of our redeemable convertible preferred stock, the sale and issuance of convertible debt, and the sale and issuance of common stock in our IPO and follow-on public offering.

From inception through September 30, 2021, we have raised $509.4 million in aggregate cash proceeds from these transactions, net of issuance costs.

As of September 30, 2021, we had cash, cash equivalents and marketable securities of $314.4 million.

To date, we have financed our operations primarily with proceeds from the sale and issuance of equity securities.

From inception through March 31, 2022, we have raised $517.8 million in aggregate cash proceeds from such transactions, net of issuance costs.

As of March 31, 2022, we had cash, cash equivalents and marketable securities of $222.5 million.

On November 3, 2021, we entered into an Open Market Sale Agreement, or the sales agreement, with Jefferies LLC, or Jefferies, to provide for the offering, issuance and sale of up to an aggregate amount of $125.0 million of common stock from time to time in at-the-market offerings for which Jefferies acts as sales agent.

During the three months ended March 31, 2022, we issued and sold 70,410 shares under the sales agreement for aggregate net proceeds of $1.4 million.

We have issued and sold a total of 462,407 shares under the sales agreement for aggregate net proceeds of $8.4 million after deducting commissions and offering expenses payable by us.

Historical Cash Flows

The following table provides information regarding our cash flows for each period presented (in thousands):

Nine Months Ended

September 30,

Three Months Ended March 31,

Net cash (used in) provided by:

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Financing activities 1,209 276

Net (decrease) increase in cash, cash equivalents and restricted cash $ (130,513) $ 69,957

Net decrease in cash, cash equivalents and restricted cash $ (61,450) $ (165,456)

Operating Activities

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We have historically experienced negative cash flows from operating activities as we have invested in developing our portfolio, drug discovery efforts and related infrastructure.

The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital, which are primarily the result of increased expenses and timing of vendor payments.

During the nine months ended September 30, 2021, net cash used in operating activities of $79.7 million was primarily due to our $108.5 million net loss, partially offset by $9.7 million in changes in operating assets and liabilities and $19.1 million of non-cash charges primarily related to stock-based compensation.

During the nine months ended September 30, 2020, net cash used in operating activities of $32.4 million was primarily due to our $36.1 million net loss, partially offset by $1.8 million in changes in operating assets and liabilities and $1.9 million of non-cash charges.

The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in operating assets and liabilities, which are primarily the result of increased expenses and timing of vendor payments.

During the three months ended March 31, 2022, net cash used in operating activities of $54.1 million was primarily due to our $68.7 million net loss, partially offset by $8.5 million of non-cash charges primarily related to stock-based compensation, and $6.1 million in changes in operating assets and liabilities primarily related to increases in accounts payable and accrued expenses.

During the three months ended March 31, 2021, net cash used in operating activities of $25.7 million was primarily due to our $27.4 million net loss and $3.5 million in changes in operating assets and liabilities primarily related to a decrease in accrued expenses and prepaid expenses and other current assets, partially offset by $5.1 million of non-cash charges primarily related to stock-based compensation.

Investing Activities

During the nine months ended September 30, 2021, net cash used in investing activities of $150.7 million primarily related to the purchase of marketable securities, partially offset by the maturities of marketable securities.

There were no cash flows from investing activities during the nine months ended September 30, 2020.

During the three months ended March 31, 2022, net cash used in investing activities of $8.6 million was primarily related to the purchase of marketable securities, partially offset by the maturity of marketable securities.

During the three months ended March 31, 2021, net cash used in investing activities of $140.0 million was primarily related to the purchase of marketable securities.

Financing Activities

During the nine months ended September 30, 2021, net cash provided by financing activities of $99.9 million consisted of net proceeds from our follow-on public offering of $98.5 million and net proceeds from the exercise of stock options of $2.0 million, partially offset by the payment of issuance costs for our IPO.

During the nine months ended September 30, 2020, net cash provided by financing activities of $102.4 million consisted of proceeds from the issuance of Series C-1 redeemable convertible preferred stock and exercise of stock options, partially offset by cash paid for the repurchase of our Series C redeemable convertible preferred stock and payment of issuance costs.

During the three months ended March 31, 2022, net cash provided by financing activities of $1.2 million consisted of net proceeds from at-the-market offerings of $1.4 million and net proceeds from the exercise of stock options of $0.3 million partially offset by the payment of issuance costs for our at-the-market offerings and the payment of taxes related to the vesting of restricted stock units.

During the three months ended March 31, 2021, net cash provided by financing activities was not material.

Plan of Operation and Future Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical activities and clinical trials of our product candidates.

In addition, we expect to incur additional costs associated with operating as a public company and as we transition from being an emerging growth company and a smaller reporting company.

As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.

We anticipate that our expenses will increase substantially if and as we:

• advance the clinical development of our PRAX-114, PRAX-944 and PRAX-562 product candidates;

• advance the clinical development of our clinical-stage product candidates within our psychiatry, movement disorders and epilepsy franchises, respectively;

• advance the development of any additional product candidates;

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• make strategic investments in manufacturing capabilities;

• maintain our current intellectual property portfolio and opportunistically acquire complementary intellectual property;

• maintain our IP portfolio and opportunistically acquire complementary IP;

• seek to obtain regulatory approvals for our product candidates;

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• experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges.

We are unable to estimate the exact amount of our working capital requirements, but based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2023.

our operating expenses and capital expenditure requirements into the third quarter of 2023.

However, we have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Because of the numerous risks and uncertainties associated with product development and potential collaborations with third parties for the development of our product candidates, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:

• the scope, progress, results and costs of preclinical studies and clinical trials for our programs and product candidates;

• the number and characteristics of programs and technologies that we develop or may in-license;

• the scope, progress, results and costs of preclinical studies and clinical trials for our franchises and product candidates;

• the number and characteristics of product candidates and technologies that we develop or may in-license;

• the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

• the costs necessary to obtain regulatory approvals, if any, for products in the United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained;

• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our IP rights and defending any IP-related claims;

• the continuation of our existing licensing arrangements and entry into new collaborations and licensing arrangements;

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If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.

Contractual Obligations

As of September 30, 2021, there have been no significant changes to our contractual obligations from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Commitments” included in our Annual Report on Form 10-K filed with the SEC on March 17, 2021, other than our new sublease agreement entered into in May 2021 for office space in Boston, Massachusetts.

The space is being used as our new corporate headquarters as of October 1, 2021 and the sublease expires on January 31, 2026, with no option to renew or terminate early.

The base rent increases by 2% annually.

Starting in January 2022, we are obligated to pay $5.2 million in total future lease payments over the remaining term of the lease.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

If we are unable to raise additional

funds through equity or debt financings when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.

Critical Accounting Policies and Significant Judgments and Estimates

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

There have been no changes to our critical accounting policies from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates” included in our Annual Report on Form 10-K filed with the SEC on March 17, 2021.

JOBS Act and Emerging Growth Company Status

In April 2012, the JOBS Act was enacted.

As an emerging growth company, or EGC, under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies.

Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation and less extensive disclosure about our executive compensation arrangements.

Additionally, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards.

This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected to avail ourselves of the extended transition period and, therefore, while we are an EGC we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not EGCs, unless we choose to early adopt a new or revised accounting standard.

We will remain an emerging growth company until December 31, 2021.

Recently Issued Accounting Pronouncements

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, such standards will not have a material impact on our condensed consolidated financial statements or do not otherwise apply to our current operations.

Quantitative and Qualitative Disclosures About Market Risk.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis