Praxis Precision Medicines, Inc. 10-Q

Item 2. 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 (the "SEC") on February 28, 2022. 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 Quarterly Report on Form 10-Q for the six months ended June 30, 2022, 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. Overview 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 disorders, using our understanding of shared biological targets and circuits in the brain, to develop patient-guided therapies. 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 CNS portfolio with multiple programs across movement disorders and epilepsy, with four clinical-stage product candidates. For our lead clinical-stage program, we expect to announce topline results from the Phase 2b clinical trial in essential tremor, or ET, in the first quarter of 2023 and expect to initiate a Phase 2 clinical trial for the treatment of Parkinson's disease, or PD, in the first quarter of 2023. We expect the initiation of first-in-patient studies for our lead antisense oligonucleotide, or ASO, epilepsy program in the fourth quarter of 2022 and our 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, we have 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. Within Movement Disorders, our lead clinical candidate, PRAX-944, is being developed for the treatment of ET and PD. We expect to report topline results from the Phase 2b placebo-controlled Essential1 Study for daytime treatment of ET in the first quarter of 2023. Following topline results, we intend to meet with the U.S. Food and Drug Administration, or the FDA, for an end-of-Phase 2 meeting in the first half of 2023 and initiate our Phase 3 development program in ET in mid-2023. We plan to initiate a Phase 2, placebo-controlled trial to evaluate the efficacy, safety, and tolerability of PRAX-944 as a non-dopaminergic treatment for the motor symptoms of PD in the first quarter of 2023, and expect to report topline results in the second half of 2023. Within Epilepsy, we plan to initiate the first dose cohort of the EMBRAVE study for PRAX-222, an ASO designed to decrease the expression levels of the protein encoded by the gene SCN2A in pediatric patients with early-seizure-onset SCN2A Developmental and Epileptic Encephalopathy, or DEE, in the fourth quarter of 2022. Following collection of the safety and efficacy data from the first cohort of patients in the EMBRAVE study, the data will be evaluated and submitted to the FDA to seek authorization for dose escalation. Topline results from the initial dose cohort are expected in 2023. We plan to initiate a Phase 2, placebo-controlled study with PRAX-562 in the first quarter of 2023 for the treatment of rare pediatric DEEs, with initial cohorts in SCN2A and SCN8A DEEs, and expect to report topline results in 2023. In October 2022, we received additional detail from the FDA regarding the clinical hold for our Investigational New Drug application for PRAX-562 for the treatment of pediatric patients with SCN2A and SCN8A DEEs. Based on the feedback from the FDA, we expect that no new preclinical or clinical studies will be required to clear the clinical hold. In addition, we expect to initiate a Phase 1 study with PRAX-628 in the fourth quarter of 2022 and subsequently initiate a Phase 2 study in focal epilepsy in 2023. Our disclosed 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 two additional discovery programs for undisclosed targets in movement disorders and epilepsy. We plan to advance ASO candidate PRAX-080 for PCDH19 into preclinical development in 2023. 15 Following the completion of the PRAX-114 Phase 2 Acapella Study for the treatment of Major Depressive Disorder in the third quarter of 2022, we do not currently plan to pursue further development of PRAX-114 for psychiatric disorders. The PRAX-114 Phase 2 Acapella study (N=110) was intended to provide additional understanding of the dose range and to evaluate the safety and efficacy of PRAX-114 at doses of 10, 20, 40 and 60 mg. Topline data indicated a linear dose response trend on the primary endpoint of change from baseline in the 17-item Hamilton Depression Rating Scale total score at Day 15, but were not statistically significant. In multiple secondary endpoints evaluating 40 mg of PRAX-114 relative to placebo, nominal statistical significance was achieved at Day 4, but not maintained at subsequent timepoints. 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, 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 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 $172.9 million for the nine months ended September 30, 2022. As of September 30, 2022, we had an accumulated deficit of $489.5 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 be maintained or increased in connection with our ongoing activities, as we: • advance our lead product candidate, PRAX-944, to a late stage clinical trial; • advance our PRAX-562 product candidate in the Phase 2 clinical trial; • advance our PRAX-222 product candidate in the EMBRAVE clinical trial; • advance our PRAX-628 product candidate in the Phase 1 clinical trial; • advance our preclinical candidates to clinical trials; • further invest in our pipeline; • further invest in our manufacturing capabilities; • seek regulatory approval for our product candidates; • maintain, expand, protect and defend our IP portfolio; • acquire or in-license technology; • establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; and • when needed, increase our headcount to support our development efforts and any future commercialization efforts. 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. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or 16 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 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, 2022, we had cash, cash equivalents and marketable securities of $123.7 million. We believe that our cash, cash equivalents and marketable securities as of September 30, 2022 will enable us to fund our operating expenses and capital expenditures into the first quarter of 2024. We have based this analysis on our 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 our operational cost reduction plans, including ongoing efforts to eliminate costs not related to our strategic focus. Such estimates contain significant judgement as our ongoing efforts to eliminate costs not related to our strategic focus contains uncertainties as to whether we can attain such benefits. Our current operating plan is based on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect, in which case we would evaluate further reductions in our expenses or obtaining additional financing sooner than we otherwise would, which additional financing may not be available or may only be available on terms that are not acceptable to us. See “—Liquidity and Capital Resources.” Restructuring In June 2022, we began a strategic realignment to focus resources on our Movement Disorders and Epilepsy franchises, which resulted in a reduction of our workforce. We 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. We do 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. COVID-19 Business Update 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. Financial Operations Overview Revenue 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 such collaboration or license agreements. 17 Operating 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. Research and development expenses represent costs incurred by us for the following: • costs to develop our portfolio; • discovery efforts leading to development candidates; • clinical development costs for our product candidates; and • costs to develop our manufacturing technology and infrastructure. The costs above comprise the following categories: • personnel-related expenses, including salaries, benefits and stock-based compensation expense; • 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; • costs incurred with third-party contract development and manufacturing organizations to acquire, develop and manufacture materials for preclinical and clinical studies; and • depreciation, amortization and other direct and allocated expenses, including rent and other operating costs, incurred as a result of our research and development activities. We expense research and development costs as incurred. 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 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. 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Movement disorders $ 9,262 $ 6,735 $ 26,777 $ 12,107 Epilepsy 7,630 4,942 32,579 15,707 Psychiatry 2,642 9,188 28,394 19,029 Other exploratory CNS indications 414 1,475 2,853 2,957 Personnel-related (including stock-based compensation) 8,714 8,334 30,590 21,584 Other indirect research and development expenses 1,777 2,465 5,518 5,362 Total research and development expenses $ 30,439 $ 33,139 $ 126,711 $ 76,746 18 Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will be maintained or increase in the foreseeable future as we advance our product candidates through the development phase, and as we continue to discover and develop additional product candidates, build manufacturing capabilities and expand into additional therapeutic areas. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of: • our ability to add and retain key research and development personnel; • the timing and progress of preclinical and clinical development activities; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to successfully complete clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; • our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates; • our successful enrollment in and completion of clinical trials; • the costs associated with the development of any additional product candidates we identify in-house or acquire through collaborations; • our ability to discover, develop and utilize biomarkers to demonstrate target engagement, pathway engagement and the impact on disease progression of our product candidates; • our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved; • 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 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 approved, whether alone or in collaboration with others; and • the continued acceptable safety profiles of the product candidates following approval. A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time to complete our clinical development activities. We may never obtain regulatory approval for any of our product candidates. 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. General and administrative expenses also include legal fees relating to corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; commercial-related costs to support market assessments and scenario planning; insurance costs; administrative travel expenses; and facility-related expenses, 19 which include direct depreciation costs and allocated expenses for office rent and other operating costs. Costs to secure and defend our IP are expensed as incurred and are classified as general and administrative expenses. These costs relate to the operation of the business and are unrelated to the research and development function or any individual franchise or product candidate. We anticipate that our general and administrative expenses may increase in the future as we increase our headcount, when needed, to support the expected growth in our research and development activities and the potential commercialization of our product candidates. We also expect to incur additional IP-related expenses as we file patent applications to protect innovations arising from our research and development activities. Other Income Other Income, Net Other income, net consists of interest income from our cash, cash equivalents and marketable securities and amortization of investment premiums and discounts. Income Taxes Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits due to our uncertainty of realizing a benefit from those items. Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates. The income tax provision for the three and nine months ended September 30, 2022 and 2021 was not material. Results of Operations Comparison of the Three Months Ended September 30, 2022 and 2021 The following table summarizes our consolidated statements of operations for each period presented (in thousands): Three Months Ended September 30, Change 2022 2021 Operating expenses: Research and development $ 30,439 $ 33,139 $ (2,700) General and administrative 13,851 11,634 2,217 Total operating expenses 44,290 44,773 (483) Loss from operations (44,290) (44,773) 483 Other income: Other income, net 345 73 272 Total other income 345 73 272 Loss before income taxes $ (43,945) $ (44,700) $ 755 Provision for income taxes — (5) 5 Net loss $ (43,945) $ (44,705) $ 760 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): 20 Three Months Ended September 30, Change 2022 2021 Movement disorders $ 9,262 $ 6,735 $ 2,527 Epilepsy 7,630 4,942 2,688 Psychiatry 2,642 9,188 (6,546) Other exploratory CNS indications 414 1,475 (1,061) Personnel-related (including stock-based compensation) 8,714 8,334 380 Other indirect research and development expenses 1,777 2,465 (688) Total research and development expenses $ 30,439 $ 33,139 $ (2,700) The $2.7 million decrease in research and development expenses was primarily attributable to the following: • $6.5 million decrease in expense related to our psychiatry franchise, driven primarily by a decrease in clinical-related spend for our PRAX-114 Phase 2/3 Aria clinical trial for which we announced topline results in the second quarter of 2022; • $2.7 million increase in expense related to our epilepsy franchise, driven primarily by an increase in preclinical activities for PRAX-628 and our earlier stage assets and an increase in clinical-related spend to support the initiation of the PRAX-222 EMBRAVE clinical trial; and • $2.5 million increase in expense related to our movement disorders franchise, driven primarily by an increase in clinical-related spend for our PRAX-944 Phase 2b Essential1 clinical trial and our Phase 1 healthy volunteers trial. General and Administrative Expense The $2.2 million increase in general and administrative expenses was primarily due to an increase in personnel-related costs due to increased headcount. Other Income Other income for the three months ended September 30, 2022 and 2021 was comprised of interest income on our cash, cash equivalents and marketable securities and investment premium and discount amortization. Comparison of the Nine Months Ended September 30, 2022 and 2021 The following table summarizes our consolidated statements of operations for each period presented (in thousands): Nine Months Ended September 30, Change 2022 2021 Operating expenses: Research and development $ 126,711 $ 76,746 $ 49,965 General and administrative 46,822 31,929 14,893 Total operating expenses 173,533 108,675 64,858 Loss from operations (173,533) (108,675) (64,858) Other income: Other income, net 677 201 476 Total other income 677 201 476 Loss before income taxes $ (172,856) $ (108,474) $ (64,382) Provision for income taxes — (5) 5 Net loss $ (172,856) $ (108,479) $ (64,377) Research and Development Expense 21 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 2022 2021 Movement disorders $ 26,777 $ 12,107 $ 14,670 Epilepsy 32,579 15,707 16,872 Psychiatry 28,394 19,029 9,365 Other exploratory CNS indications 2,853 2,957 (104) Personnel-related (including stock-based compensation) 30,590 21,584 9,006 Other indirect research and development expenses 5,518 5,362 156 Total research and development expenses $ 126,711 $ 76,746 $ 49,965 The $50.0 million increase in research and development expenses was primarily attributable to the following: • $16.9 million increase in expense related to our epilepsy franchise, driven primarily by an increase in preclinical activities for PRAX-628 and our earlier stage assets, an increase in clinical-related spend for our PRAX-562 Phase 1 trials in healthy volunteers, an increase in clinical-related spend to support the initiation of the PRAX-222 EMBRAVE clinical trial, 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; • $14.7 million increase in expense related to our movement disorders franchise, driven primarily by an increase in clinical-related spend for our PRAX-944 Phase 2b Essential1 clinical trial, an increase in clinical-related spend for our PRAX-114 Phase 2 clinical trial evaluating PRAX-114 for the treatment of ET, and an increase in clinical-related spend for our PRAX-944 Phase 1 healthy volunteer trials; • $9.4 million increase in expense related to our psychiatry franchise, driven primarily by an increase in clinical-related spend for our PRAX-114 Phase 2 Acapella clinical trial which was initiated in the second quarter of 2021 and our Phase 2 placebo-controlled study evaluating PRAX-114 for the treatment of post-traumatic stress disorder which was initiated in the fourth quarter of 2021; and • $9.0 million increase in personnel-related costs due to increased headcount. General and Administrative Expense The $14.9 million increase in general and administrative expenses was primarily attributable to the following: • $10.9 million increase in personnel-related costs due to increased headcount; and • $3.4 million increase in professional fees, including a $1.6 million increase in legal fees due to increased corporate activity and patent-related work. Other Income Other income for the nine months ended September 30, 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 Sources of Liquidity Since our inception, we have incurred significant losses in each period. 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 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 our shelf registration statement. From inception through September 30, 2022, we 22 have raised $520.8 million in aggregate cash proceeds from such transactions, net of issuance costs. As of September 30, 2022, we had cash, cash equivalents and marketable securities of $123.7 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 September 30, 2022, we issued and sold 1,105,006 shares under the sales agreement for aggregate net proceeds of $3.0 million after deducting commissions and offering expenses payable by us. During the nine months ended September 30, 2022, we issued and sold 1,175,416 shares under the sales agreement for aggregate net proceeds of $4.3 million after deducting commissions and offering expenses payable by us. We have issued and sold a total of 1,567,413 shares under the sales agreement for aggregate net proceeds of $11.4 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, 2022 2021 Net cash (used in) provided by: Operating activities $ (156,237) $ (79,697) Investing activities 74,295 (150,689) Financing activities 5,078 99,873 Net decrease in cash, cash equivalents and restricted cash $ (76,864) $ (130,513) Operating Activities Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support our business. 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 operating assets and liabilities, which are primarily the result of increased expenses and timing of vendor payments. During the nine months ended September 30, 2022, net cash used in operating activities of $156.2 million was primarily due to our $172.9 million net loss and $7.3 million in changes in operating assets and liabilities primarily related to a decrease in accrued expenses, partially offset by $23.9 million of non-cash charges primarily related to stock-based compensation. 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 $19.1 million of non-cash charges primarily related to stock-based compensation and $9.7 million in changes in operating assets and liabilities primarily related to an increase in accrued expenses and accounts payable. Investing Activities During the nine months ended September 30, 2022, net cash provided by investing activities of $74.3 million was primarily related to maturities of marketable securities, partially offset by purchases of marketable securities. During the nine months ended September 30, 2021, net cash used in investing activities of $150.7 million was primarily related to the purchase of marketable securities, partially offset by the maturities of marketable securities. Financing Activities During the nine months ended September 30, 2022, net cash provided by financing activities of $5.1 million consisted of net proceeds from at-the-market offerings of $4.3 million and proceeds from purchases of common stock under our employee stock purchase plan and from the exercise of stock options, partially offset by the 23 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 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, partially offset by the payment of issuance costs for our initial public offering. 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. 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 clinical-stage product candidates within our movement disorders and epilepsy franchises; • advance the development of any additional product candidates; • conduct research and continue preclinical development of potential product candidates; • make strategic investments in manufacturing capabilities; • maintain our IP portfolio and opportunistically acquire complementary IP; • seek to obtain regulatory approvals for our product candidates; • potentially establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which we may obtain regulatory approval; • when needed, add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and to support our operations as a public company; and • 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. In June 2022, following the Aria Study topline results, we announced a strategic realignment to focus resources on our Movement Disorders and Epilepsy franchises, which resulted in a reduction of our workforce and future operating expenses and extended our cash runway . We are unable to estimate the exact amount of our working capital requirements, but based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of September 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024. We have based this analysis on our 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 our operational cost reduction plans, including ongoing efforts to eliminate costs not related to our strategic focus. Such estimates contain significant judgement as our ongoing efforts to eliminate costs not related to our strategic focus contains uncertainties as to whether we can attain such benefits. Our current operating plan is based on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect, in which case we would evaluate further reductions in our expenses or obtaining additional financing sooner than we otherwise would, which additional financing may not be available or may only be available on terms that are not acceptable to us. 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: 24 • 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 IP rights and defending any IP-related claims; • the continuation of our existing licensing arrangements and entry into new collaborations and licensing arrangements; • the costs we incur in maintaining business operations; • the costs associated with being a public company; • the revenue, if any, received from commercial sales of any product candidates for which we receive marketing approval; • the effect of competing technological and market developments; • the impact of any business interruptions to our operations or to those of our manufacturers, suppliers or other vendors resulting from the COVID-19 pandemic or similar public health crisis; and • the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates, although we currently have no commitments or agreements to complete any such acquisitions or investments in businesses. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. Market volatility could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock. 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. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 25 disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. 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 February 28, 2022. 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.