Praxis Precision Medicines, Inc. 10-Q

Item 1. Financial Statements. PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands, except share and per share data) September 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 62,440 $ 138,704 Marketable securities 61,300 137,207 Prepaid expenses and other current assets 8,572 11,498 Total current assets 132,312 287,409 Property and equipment, net 1,077 1,213 Operating lease right-of-use assets 3,097 3,653 Other non-current assets 416 472 Total assets $ 136,902 $ 292,747 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 10,122 $ 10,780 Accrued expenses 17,884 26,844 Operating lease liabilities 977 810 Total current liabilities 28,983 38,434 Long-term liabilities: Non-current portion of operating lease liabilities 2,756 3,501 Total liabilities 31,739 41,935 Commitments and contingencies (Note 6) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized and no shares issued or outstanding as of September 30, 2022 and December 31, 2021 — — Common stock, $ 0.0001 par value; 150,000,000 shares authorized; 46,864,327 shares issued and outstanding as of September 30, 2022, and 45,300,514 shares issued and outstanding as of December 31, 2021 5 5 Additional paid-in capital 595,165 567,598 Accumulated other comprehensive loss ( 536 ) ( 176 ) Accumulated deficit ( 489,471 ) ( 316,615 ) Total stockholders’ equity 105,163 250,812 Total liabilities and stockholders’ equity $ 136,902 $ 292,747 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating expenses: Research and development $ 30,439 $ 33,139 $ 126,711 $ 76,746 General and administrative 13,851 11,634 46,822 31,929 Total operating expenses 44,290 44,773 173,533 108,675 Loss from operations ( 44,290 ) ( 44,773 ) ( 173,533 ) ( 108,675 ) Other income: Other income, net 345 73 677 201 Total other income 345 73 677 201 Loss before income taxes $ ( 43,945 ) $ ( 44,700 ) $ ( 172,856 ) $ ( 108,474 ) Provision for income taxes — ( 5 ) — ( 5 ) Net loss $ ( 43,945 ) $ ( 44,705 ) $ ( 172,856 ) $ ( 108,479 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.96 ) $ ( 1.00 ) $ ( 3.79 ) $ ( 2.61 ) Weighted average common shares outstanding, basic and diluted 45,774,376 44,714,941 45,591,888 41,608,017 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (Amounts in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net loss $ ( 43,945 ) $ ( 44,705 ) $ ( 172,856 ) $ ( 108,479 ) Change in unrealized losses on marketable securities, net of tax 144 25 ( 360 ) ( 25 ) Comprehensive loss $ ( 43,801 ) $ ( 44,680 ) $ ( 173,216 ) $ ( 108,504 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (Amounts in thousands, except share data) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Balance at December 31, 2021 45,300,514 $ 5 $ 567,598 $ ( 316,615 ) $ ( 176 ) $ 250,812 Stock-based compensation expense — — 7,886 — — 7,886 Issuance of common stock from at-the-market public offerings, net of issuance costs 70,410 — 1,368 — — 1,368 Vesting of restricted stock units 81,130 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 17,850 ) — ( 230 ) — — ( 230 ) Issuance of common stock upon exercise of stock options 72,278 — 333 — — 333 Change in unrealized loss on marketable securities, net of tax — — — — ( 430 ) ( 430 ) Net loss — — — ( 68,717 ) — ( 68,717 ) Balance at March 31, 2022 45,506,482 $ 5 $ 576,955 $ ( 385,332 ) $ ( 606 ) $ 191,022 Stock-based compensation expense — — 7,611 — — 7,611 Issuance of common stock under employee stock purchase plan 51,645 — 454 — — 454 Vesting of restricted stock units 6,361 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 2,225 ) — ( 17 ) — — ( 17 ) Issuance of common stock upon exercise of stock options 13,143 — 67 — — 67 Change in unrealized loss on marketable securities, net of tax — — — — ( 74 ) ( 74 ) Net loss — — — ( 60,194 ) — ( 60,194 ) Balance at June 30, 2022 45,575,406 $ 5 $ 585,070 $ ( 445,526 ) $ ( 680 ) $ 138,869 Stock-based compensation expense — — 6,730 — — 6,730 Issuance of common stock from at-the-market public offerings, net of issuance costs of $ 109 1,105,006 — 2,962 — — 2,962 Vesting of restricted stock units 5,312 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 1,638 ) — ( 6 ) — — ( 6 ) Issuance of common stock upon exercise of stock options 180,241 — 409 — — 409 Change in unrealized loss on marketable securities, net of tax — — — — 144 144 Net loss — — — ( 43,945 ) — ( 43,945 ) Balance at September 30, 2022 46,864,327 $ 5 $ 595,165 $ ( 489,471 ) $ ( 536 ) $ 105,163 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued) (Unaudited) (Amounts in thousands, except share data) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 38,268,543 $ 4 $ 437,007 $ ( 149,554 ) $ — $ 287,457 Stock-based compensation expense — — 4,666 — — 4,666 Issuance of common stock upon exercise of stock options 352,506 — 851 — — 851 Change in unrealized loss on marketable securities, net of tax — — — — ( 86 ) ( 86 ) Net loss — — — ( 27,373 ) — ( 27,373 ) Balance at March 31, 2021 38,621,049 $ 4 $ 442,524 $ ( 176,927 ) $ ( 86 ) $ 265,515 Stock-based compensation expense — — 5,400 — — 5,400 Issuance of common stock from follow-on public offering, net of offering costs of $ 229 5,750,000 1 98,412 — — 98,413 Issuance of common stock upon exercise of stock options 322,113 — 809 — — 809 Change in unrealized loss on marketable securities, net of tax — — — — 36 36 Net loss — — — ( 36,401 ) — ( 36,401 ) Balance at June 30, 2021 44,693,162 $ 5 $ 547,145 $ ( 213,328 ) $ ( 50 ) $ 333,772 Stock-based compensation expense — — 6,521 — — 6,521 Issuance of common stock upon exercise of stock options 90,909 — 309 — — 309 Change unrealized loss on marketable securities, net of tax — — — — 25 25 Net loss — — — ( 44,705 ) — ( 44,705 ) Balance at September 30, 2021 44,784,071 $ 5 $ 553,975 $ ( 258,033 ) $ ( 25 ) $ 295,922 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 172,856 ) $ ( 108,479 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 314 89 Stock-based compensation expense 22,227 16,587 Non-cash operating lease expense 556 942 Amortization of premiums and discounts on marketable securities, net 807 1,454 Changes in operating assets and liabilities: Prepaid expenses and other current assets 2,326 749 Accounts payable ( 658 ) 4,031 Accrued expenses ( 8,431 ) 5,481 Operating lease liabilities ( 578 ) ( 566 ) Other 56 15 Net cash used in operating activities ( 156,237 ) ( 79,697 ) Cash flows from investing activities: Purchases of property and equipment ( 444 ) ( 519 ) Purchases of marketable securities ( 83,022 ) ( 164,170 ) Maturities of marketable securities 157,761 14,000 Net cash provided by (used in) investing activities 74,295 ( 150,689 ) Cash flows from financing activities: Proceeds from follow-on public offering, net of issuance costs — 98,480 Proceeds from at-the-market offerings, net of issuance costs 4,330 — Payment of issuance costs for at-the-market offerings and initial public offering ( 262 ) ( 575 ) Payments of tax withholdings related to vesting of restricted stock units ( 253 ) — Proceeds from exercise of options and employee stock purchase plan contributions 1,263 1,968 Net cash provided by financing activities 5,078 99,873 Decrease in cash, cash equivalents and restricted cash ( 76,864 ) ( 130,513 ) Cash, cash equivalents and restricted cash, beginning of period 139,720 297,208 Cash, cash equivalents and restricted cash, end of period $ 62,856 $ 166,695 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents 62,440 165,679 Restricted cash 416 1,016 Total cash, cash equivalents and restricted cash $ 62,856 $ 166,695 Supplemental disclosures of non-cash activities: Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ — $ 4,086 Offering costs included in accrued expenses $ — $ 68 Purchases of property and equipment included in accrued expenses $ — $ 116 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 PRAXIS PRECISION MEDICINES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Nature of the Business Praxis Precision Medicines, Inc. (“Praxis” or the “Company”) is a clinical-stage biopharmaceutical company translating genetic insights into the development of therapies for central nervous system ("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. The Company is applying insights from genetic epilepsies to both rare and more prevalent neurological disorders, using its understanding of shared biological targets and circuits in the brain, to develop patient-guided therapies. The Company applies 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, the Company has established a broad CNS portfolio including multiple programs across movement disorders and epilepsy, with four clinical-stage product candidates. For its lead clinical-stage program, the Company expects to announce topline results from the Phase 2b clinical trial in essential tremor in the first quarter of 2023 and expects to initiate a Phase 2 clinical trial for the treatment of Parkinson's disease in the first quarter of 2023. The Company expects the initiation of first-in-patient studies for its lead antisense oligonucleotide epilepsy program in the fourth quarter of 2022 and its lead small molecule epilepsy program in the first quarter of 2023, as well as the launch of an additional clinical epilepsy program this year. In addition, the Company has established a robust pipeline of preclinical stage programs through internal research and in-licensing, including one of the largest portfolios of targeted epilepsy programs in the industry. Praxis was incorporated in 2015 and commenced operations in 2016. The Company has funded its operations primarily with proceeds from the issuance of redeemable convertible preferred stock and from the sale of common stock through an initial public offering, a follow-on public offering and at-the-market offerings under its shelf registration statement. From inception through September 30, 2022, the Company raised $ 520.8 million in aggregate cash proceeds from these transactions, net of issuance costs. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Programs currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales. Liquidity In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. The Company has incurred recurring losses since its inception, including a net loss of $ 172.9 million for the nine months ended September 30, 2022. In addition, as of September 30, 2022, the Company had an accumulated deficit of $ 489.5 million. The Company expects to continue to generate operating losses for the foreseeable future. The analysis of the Company’s ability to continue as a going concern for the third quarter of 2022 included consideration of the Company’s current cash needs, ongoing research and development plans which are limited to advancing product candidates through, but not beyond their current clinical trial phases, anticipated cost savings resulting from its operational cost reduction plans, including ongoing efforts to eliminate costs not related to the 7 Company’s strategic focus. Such estimates contain significant judgment as the Company’s ongoing efforts to eliminate costs not related to the Company’s strategic focus contains uncertainties as to whether the Company can attain such benefits. Based on the analysis, the Company concluded that its available cash, cash equivalents and marketable securities as of September 30, 2022 will be sufficient to fund current prioritized operations and capital expenditure requirements into the first quarter of 2024, which is at least 12 months from the filing date of this Quarterly Report on Form 10-Q with the SEC. As a result, the Company concluded that it did not identify conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date these financial statements were issued. The Company’s current operating plan is based on assumptions that may prove to be wrong, and the Company could use its capital resources sooner than it expects, in which case the Company would evaluate further reductions in its expenses or obtaining additional financing sooner than it otherwise would, which additional financing may not be available or may only be available on terms that are not acceptable to the Company. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and ASUs of the FASB. The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and nine months ended September 30, 2022 are consistent with those discussed in Note 2 to the consolidated financial statements included in the Company's 2021 Annual Report on Form 10-K, other than as noted below. Unaudited Interim Condensed Consolidated Financial Information The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 and the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2022 and 2021 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements, and in the opinion of management reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2022, the results of its operations for the three and nine months ended September 30, 2022 and 2021 and its cash flows for the nine months ended September 30, 2022 and 2021. Financial statement disclosures for the three and nine months ended September 30, 2022 and 2021 are condensed and do not include all disclosures required for an annual set of financial statements in accordance with GAAP. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ended December 31, 2022, any other interim periods, or any future year or period. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, accrued and prepaid research and development expenses, stock-based compensation expense and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates. Recently Issued Accounting Pronouncements 8 The Company does not expect any recently issued accounting pronouncements to have a material impact on its financial statements . 3. Marketable Securities The following is a summary of the Company's investment portfolio as of September 30, 2022 and December 31, 2021 (in thousands): As of September 30, 2022 Gross Unrealized Estimated Cost Gains Losses Fair Value Available-for-sale securities: Corporate debt securities $ 44,819 $ — $ ( 498 ) $ 44,321 Commercial paper 12,996 — — 12,996 Debt securities issued by U.S. government agencies 4,021 — ( 38 ) 3,983 Total securities with a maturity of one year or less $ 61,836 $ — $ ( 536 ) $ 61,300 Total available-for-sale securities $ 61,836 $ — $ ( 536 ) $ 61,300 As of December 31, 2021 Gross Unrealized Estimated Cost Gains Losses Fair Value Available-for-sale securities: Corporate debt securities $ 52,214 $ — $ ( 31 ) $ 52,183 Commercial paper 34,993 — — 34,993 Debt securities issued by U.S. government agencies 12,111 — ( 8 ) 12,103 Other debt securities 6,398 1 — 6,399 Total securities with a maturity of one year or less $ 105,716 $ 1 $ ( 39 ) $ 105,678 Corporate debt securities 31,667 — ( 138 ) 31,529 Total securities with a maturity of one to two years $ 31,667 $ — $ ( 138 ) $ 31,529 Total available-for-sale securities $ 137,383 $ 1 $ ( 177 ) $ 137,207 As of September 30, 2022, the Company had 9 securities with a total fair market value of $ 48.3 million in an unrealized loss position. As of December 31, 2021, the Company had 14 securities with a total fair market value of $ 95.8 million in an unrealized loss position. The Company believes that any unrealized losses associated with the decline in value of its securities is temporary and primarily related to the change in market interest rates since purchase, and believes that it is more likely than not that it will be able to hold its debt securities to maturity. Therefore, the Company anticipates a full recovery of the amortized cost basis of its debt securities at maturity and an allowance was not recognized. Securities are evaluated for impairment at the end of each reporting period. The Company did not record any impairment related to its available-for-sale securities during the three and nine months ended September 30, 2022 and 2021. 4. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The Company categorizes financial assets measured at fair value based on a fair value hierarchy. The following fair value hierarchy is used to classify financial assets based on observable inputs and unobservable inputs used to value the financial assets: 9 • Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets; • Level 2: Quoted prices for similar assets in active markets, quoted prices in markets that are not active, or inputs which are unobservable, either directly or indirectly, for substantially the full term of the asset; or • Level 3: Prices or valuation techniques that require inputs that are both significant to the valuation of the asset and unobservable. The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values as of September 30, 2022 and December 31, 2021 (in thousands): As of September 30, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 58,218 $ — $ — $ 58,218 Marketable securities: Corporate debt securities — 44,321 — 44,321 Commercial paper — 12,996 — 12,996 Debt securities issued by U.S. government agencies 3,983 — — 3,983 $ 62,201 $ 57,317 $ — $ 119,518 As of December 31, 2021 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 131,372 $ — $ — $ 131,372 Marketable securities: Corporate debt securities — 83,712 — 83,712 Commercial paper — 34,993 — 34,993 Debt securities issued by U.S. government agencies 12,103 — — 12,103 Other debt securities — 6,399 — 6,399 $ 143,475 $ 125,104 $ — $ 268,579 5. Accrued Expenses Accrued expenses consisted of the following (in thousands): September 30, 2022 December 31, 2021 Accrued external research and development expenses $ 12,978 $ 17,763 Accrued personnel-related expenses 2,648 7,180 Accrued other 2,258 1,901 Total accrued expenses $ 17,884 $ 26,844 6. Commitments and Contingencies In May 2021, the Company entered into a sublease agreement for office space located in Boston, Massachusetts that expires on January 31, 2026, with no option to renew or terminate early. The base rent increases by approximately 2 % annually. The Company issued a letter of credit to the landlord related to the security deposit, secured by restricted cash, which is reflected within other non-current assets on the accompanying 10 condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021. This lease qualifies as an operating lease. 7. Common Stock and Preferred Stock Common Stock As of September 30, 2022 and December 31, 2021, the authorized capital stock of the Company included 150,000,000 shares of common stock, $ 0.0001 par value. As of September 30, 2022 and December 31, 2021, the Company did no t hold any treasury shares. Shares Reserved for Future Issuance The Company has reserved the following shares of common stock for future issuance: September 30, 2022 December 31, 2021 Shares reserved for exercise of outstanding stock options 9,159,415 6,468,501 Shares reserved for future awards under the 2020 Stock Option and Incentive Plan 1,364,855 2,667,780 Shares reserved for future awards under the 2020 Employee Stock Purchase Plan 929,661 654,204 Shares reserved for vesting of restricted stock units 789,419 440,079 Total shares of authorized common stock reserved for future issuance 12,243,350 10,230,564 Preferred Stock As of September 30, 2022 and December 31, 2021, the authorized capital stock of the Company included 10,000,000 shares of undesignated preferred stock, $ 0.0001 par value. 8. Stock-Based Compensation 2020 Stock Option and Incentive Plan The total number of shares of common stock authorized for issuance under the 2020 Stock Option and Incentive Plan (the "2020 Plan”) as of September 30, 2022 and December 31, 2021 was 7,449,480 shares and 5,184,455 shares, respectively. 2017 Stock Incentive Plan The total number of shares of common stock authorized for issuance under the 2017 Stock Incentive Plan (the "2017 Plan”) as of September 30, 2022 and December 31, 2021 was 5,937,763 shares. Any authorization to issue new options under the 2017 Plan was cancelled upon the effectiveness of the 2020 Plan and no further awards will be granted under the 2017 Plan. 2020 Employee Stock Purchase Plan The total number of shares of common stock authorized for issuance under the 2020 Employee Stock Purchase Plan (the "2020 ESPP”) as of September 30, 2022 and December 31, 2021 was 981,306 shares and 654,204 shares, respectively. 11 Restricted Stock Units The following table summarizes the Company’s restricted stock unit activity: Shares Weighted Average Grant Date Fair Value Unvested as of December 31, 2021 440,079 $ 41.86 Issued 652,328 15.00 Vested ( 92,803 ) 48.11 Forfeited ( 210,185 ) 22.76 Unvested as of September 30, 2022 789,419 $ 23.42 As of September 30, 2022, total unrecognized compensation cost related to unvested restricted stock units was $ 14.6 million, which is expected to be recognized over a weighted-average period of 2.88 years. Stock Options The following table summarizes the Company’s stock option activity: Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In years) (In thousands) Outstanding as of December 31, 2021 6,468,501 $ 16.92 Granted 3,932,802 9.29 Exercised ( 265,662 ) 3.04 $ 850 Cancelled or Forfeited ( 976,226 ) 17.99 Outstanding as of September 30, 2022 9,159,415 $ 13.94 8.49 $ 327 Exercisable as of September 30, 2022 2,993,364 $ 14.69 7.55 $ 71 Vested and expected to vest as of September 30, 2022 8,956,409 $ 13.91 8.56 $ 318 The aggregate intrinsic value of stock options outstanding, exercisable, and vested and expected to vest is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock at September 30, 2022. The aggregate intrinsic value of stock options exercised is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock on the date of exercise for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock on the exercise date. Stock Option Valuation The weighted-average assumptions that the Company used in the Black-Scholes option pricing model to determine the grant-date fair value of stock options granted to employees and non-employees on the date of grant were as follows for the three and nine months ended September 30, 2022: Three Months Ended September 30, Nine Months Ended September 30, 2022 2022 Risk-free interest rate 2.76 % 2.50 % Expected term (in years) 6.00 6.07 Expected volatility 88.08 % 89.22 % Expected dividend yield — % — % Weighted average grant-date fair value per share $ 2.16 $ 6.70 12 As of September 30, 2022, total unrecognized compensation cost related to unvested stock options was $ 53.0 million, which is expected to be recognized over a weighted-average period of 2.38 years. Stock-Based Compensation Stock-based compensation expense was allocated as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Research and development $ 1,999 $ 2,787 $ 8,200 $ 7,136 General and administrative 4,731 3,734 14,027 9,451 Total stock-based compensation expense $ 6,730 $ 6,521 $ 22,227 $ 16,587 9. Net Loss per Share The following potential shares of common stock, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have been anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Outstanding stock options 9,159,415 6,414,070 9,159,415 6,414,070 Unvested restricted stock units 789,419 383,196 789,419 383,196 Potential shares issuable under the 2020 ESPP 48,182 — 48,182 — 9,997,016 6,797,266 9,997,016 6,797,266 10. Related Party Transactions On September 11, 2019, the Company entered into a Cooperation and License Agreement (the “License Agreement”) with RogCon Inc. (“RogCon”). Under the License Agreement, RogCon granted to the Company an exclusive, worldwide license under RogCon’s intellectual property to research, develop and commercialize products for the treatment of all forms of epilepsy and/or neurodevelopmental disorders in each case caused by any mutation of the SCN2A gene. Pursuant to the terms of the License Agreement, the Company will conduct, at its own cost and expense, the research and development activities assigned to it under the associated research plan. In addition, the Company is responsible for reimbursing RogCon for any costs associated with research and development activities RogCon performs at the request of the Company. One of the founders of RogCon became the Company’s General Counsel in June 2020. The Company continues to reimburse RogCon for its out-of-pocket costs incurred for activities performed under the License Agreement. Expenses incurred during all periods presented were not material. As of September 30, 2022, the Company had accrued expenses of $ 0.3 million due to RogCon under the License Agreement. 11. Restructuring In June 2022, the Company began a strategic realignment to focus resources on its Movement Disorders and Epilepsy franchises, which resulted in a reduction of the Company’s workforce. The Company incurred $ 1.0 million of costs related to the realignment, of which $ 0.6 million has been recognized in research and development expenses and $ 0.4 million has been recognized in general and administrative expenses in the condensed consolidated statement of operations during the nine months ended September 30, 2022. These costs relate to employee severance, benefits and related costs. The Company does not expect to incur any additional significant costs related to the strategic realignment. As of September 30, 2022, all of the $ 1.0 million costs were paid. 12. Subsequent Events 13 The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the condensed consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. The Company has concluded that no subsequent events have occurred that require disclosure. 14