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, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 101,085 $ 61,615 Marketable securities — 38,874 Prepaid expenses and other current assets 2,242 10,351 Total current assets 103,327 110,840 Property and equipment, net 700 971 Operating lease right-of-use assets 2,282 2,901 Other non-current assets 416 416 Total assets $ 106,725 $ 115,128 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 7,166 $ 14,672 Accrued expenses 6,979 15,850 Operating lease liabilities 1,095 1,005 Current portion of deferred revenue 1,552 2,818 Total current liabilities 16,792 34,345 Long-term liabilities: Non-current portion of operating lease liabilities 1,661 2,495 Non-current portion of deferred revenue 1,516 2,182 Total liabilities 19,969 39,022 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, 2023 and December 31, 2022 — — Common stock, $ 0.0001 par value; 150,000,000 shares authorized; 128,547,336 shares issued and outstanding as of September 30, 2023, and 49,382,453 shares issued and outstanding as of December 31, 2022 13 5 Additional paid-in capital 713,786 606,918 Accumulated other comprehensive loss — ( 173 ) Accumulated deficit ( 627,043 ) ( 530,644 ) Total stockholders’ equity 86,756 76,106 Total liabilities and stockholders’ equity $ 106,725 $ 115,128 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, 2023 2022 2023 2022 Collaboration revenue $ 468 $ — $ 1,932 $ — Operating expenses: Research and development 17,260 30,439 68,378 126,711 General and administrative 8,724 13,851 32,121 46,822 Total operating expenses 25,984 44,290 100,499 173,533 Loss from operations ( 25,516 ) ( 44,290 ) ( 98,567 ) ( 173,533 ) Other income: Other income, net 884 345 2,168 677 Total other income 884 345 2,168 677 Net loss $ ( 24,632 ) $ ( 43,945 ) $ ( 96,399 ) $ ( 172,856 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.18 ) $ ( 0.96 ) $ ( 1.12 ) $ ( 3.79 ) Weighted average common shares outstanding, basic and diluted 135,591,429 45,774,376 86,447,174 45,591,888 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, 2023 2022 2023 2022 Net loss $ ( 24,632 ) $ ( 43,945 ) $ ( 96,399 ) $ ( 172,856 ) Change in unrealized losses on marketable securities, net of tax — 144 173 ( 360 ) Comprehensive loss $ ( 24,632 ) $ ( 43,801 ) $ ( 96,226 ) $ ( 173,216 ) 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, 2022 49,382,453 $ 5 $ 606,918 $ ( 530,644 ) $ ( 173 ) $ 76,106 Stock-based compensation expense — — 7,593 — — 7,593 Issuance of common stock from at-the-market public offerings, net of issuance costs 8,403,809 1 18,095 — — 18,096 Vesting of restricted stock units 172,798 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 43,317 ) — ( 127 ) — — ( 127 ) Issuance of common stock upon exercise of stock options 44,644 — 101 — — 101 Change in unrealized loss on marketable securities, net of tax — — — — 154 154 Net loss — — — ( 37,455 ) — ( 37,455 ) Balance at March 31, 2023 57,960,387 $ 6 $ 632,580 $ ( 568,099 ) $ ( 19 ) $ 64,468 Stock-based compensation expense — — 5,775 — — 5,775 Issuance of common stock from follow-on public offering and accompanying pre-funded warrants, net of underwriting discounts, commissions and offering costs of $ 4,484 64,449,690 6 63,433 — — 63,439 Issuance of common stock from at-the-market public offerings, net of issuance costs 5,888,128 1 6,031 — — 6,032 Issuance of common stock under employee stock purchase plan 234,947 — 208 — — 208 Vesting of restricted stock units 10,813 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 3,742 ) — ( 4 ) — — ( 4 ) Change in unrealized loss on marketable securities, net of tax — — — — 19 19 Net loss — — — ( 34,312 ) — ( 34,312 ) Balance at June 30, 2023 128,540,223 $ 13 $ 708,023 $ ( 602,411 ) $ — $ 105,625 Stock-based compensation expense — — 5,763 — — 5,763 Vesting of restricted stock units 3,500 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 1,059 ) — ( 1 ) — — ( 1 ) Issuance of common stock upon exercise of stock options 4,672 — 1 — — 1 Net loss — — — ( 24,632 ) — ( 24,632 ) Balance at September 30, 2023 128,547,336 $ 13 $ 713,786 $ ( 627,043 ) $ — $ 86,756 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, 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. 5 PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 96,399 ) $ ( 172,856 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 321 314 Stock-based compensation expense 19,131 22,227 Non-cash operating lease expense 619 556 Amortization of premiums and discounts on marketable securities, net 47 807 Changes in operating assets and liabilities: Prepaid expenses and other current assets 8,109 2,326 Accounts payable ( 7,556 ) ( 658 ) Accrued expenses ( 8,871 ) ( 8,431 ) Operating lease liabilities ( 744 ) ( 578 ) Deferred revenue ( 1,932 ) — Other — 56 Net cash used in operating activities ( 87,275 ) ( 156,237 ) Cash flows from investing activities: Purchases of property and equipment — ( 444 ) Purchases of marketable securities — ( 83,022 ) Maturities of marketable securities 39,000 157,761 Net cash provided by investing activities 39,000 74,295 Cash flows from financing activities: Issuance of common stock from follow-on public offering and accompanying pre-funded warrants, net of underwriting discounts, commissions and offering costs 63,439 — Proceeds from at-the-market offerings, net of issuance costs 24,128 4,330 Payment of issuance costs for at-the-market offerings — ( 262 ) Payments of tax withholdings related to vesting of restricted stock units ( 132 ) ( 253 ) Proceeds from exercise of stock options and employee stock purchase plan purchases 310 1,263 Net cash provided by financing activities 87,745 5,078 Increase (decrease) in cash, cash equivalents and restricted cash 39,470 ( 76,864 ) Cash, cash equivalents and restricted cash, beginning of period 62,031 139,720 Cash, cash equivalents and restricted cash, end of period $ 101,501 $ 62,856 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents 101,085 62,440 Restricted cash 416 416 Total cash, cash equivalents and restricted cash $ 101,501 $ 62,856 Supplemental disclosures of non-cash activities: Offering costs from follow-on public offering included in accounts payable $ 184 $ — Purchases of property and equipment included in accounts payable $ 50 $ — 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 insights from genetic epilepsies 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 both rare and more prevalent neurological disorders. The Company is applying genetic insights to the discovery and development of therapies for neurological disorders through two proprietary platforms, using its understanding of shared biological targets and circuits in the brain. Each platform has multiple programs currently, with significant potential for additional program and indication expansion: • Cerebrum ™, the Company's small molecule platform, utilizes deep understanding of neuronal excitability and neuronal networks and applies a series of computational and experimental tools to develop orally available precision therapies • Solidus ™, the Company's antisense oligonucleotide, or ASO, platform, is an efficient, targeted precision medicine discovery and development engine anchored on a proprietary, computational methodology The Company's platforms utilize a deliberate, pragmatic and patient-guided 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 diversified, multimodal CNS portfolio with four clinical-stage product candidates across movement disorders and epilepsy. For the Company's most advanced product candidate under the Cerebrum™ platform, ulixacaltamide (also known as PRAX-944), topline results from the Phase 2b Essential1 clinical trial in essential tremor ("ET"), were announced in the first quarter of 2023. The Company initiated its Phase 3 studies in ET in the fourth quarter of 2023, with enrollment expected to complete in the first half of 2024 and topline results expected in the second half of 2024. The Company initiated its PRAX-562 Phase 2 EMBOLD study in the first quarter of 2023 and expects to announce topline results in the first half of 2024. The Company also announced positive results from its PRAX-628 Phase 1 study in May 2023. In June 2023, the Company initiated a Phase 2 proof of concept study evaluating PRAX-628 in patients with a Photo Paroxysmal Response ("PPR"), with results anticipated in the fourth quarter of 2023. Upon completion of the PPR study, Praxis plans to initiate a Phase 2 study of PRAX-628 in focal epilepsy in the first half of 2024. For the Company's most advanced product candidate under the Solidus™ platform, elsunersen (also known as PRAX-222), the Company completed dosing in the first cohort of its EMBRAVE study and announced preliminary data from the first dose cohort in October 2023. 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 and pre-funded warrants through an initial public offering, follow-on public offerings and at-the-market offerings under its shelf registration statement. From inception through September 30, 2023, the Company raised $ 613.6 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 7 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 $ 96.4 million for the nine months ended September 30, 2023. In addition, as of September 30, 2023, the Company had an accumulated deficit of $ 627.0 million. The Company expects to continue to generate operating losses for the foreseeable future. The Company expects that its cash and cash equivalents as of September 30, 2023 of $ 101.1 million will be sufficient to fund the operating expenditures and capital expenditure requirements necessary to advance its research efforts and clinical trials for at least one year from the date of issuance of these condensed consolidated financial statements. The analysis included consideration of the Company's current financial needs and ongoing research and development plans, which are limited to advancing product candidates through, but not beyond, their current clinical trials. 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 condensed consolidated 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 this case, the Company would evaluate further reductions in its expenses or to obtain additional financing sooner than it otherwise would, which 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, 2023 are consistent with those discussed in Note 2 to the consolidated financial statements included in the Company's 2022 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, 2023, the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 and the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 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, 2023, the results of its operations for the three and nine months ended September 30, 2023 and 2022 and its cash flows for the nine months ended September 30, 2023 and 2022. Financial statement disclosures for the three and nine months ended September 30, 2023 and 2022 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, 2023 are not necessarily indicative of results to be expected for the year ended December 31, 2023, 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 8 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 expense, collaboration revenue, 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. Common Stock Warrants The Company accounts for warrants to purchase shares of its common stock in accordance with the guidance in FASB ASC No. 480, Distinguishing Liabilities from Equity (ASC 480) and ASC No. 815, Derivatives and Hedging (ASC 815). The Company classifies warrants issued for the purchase of shares of its common stock as either equity or liability instruments based on an assessment of the specific terms and conditions of each respective contract. Such assessment includes determining whether the warrants are freestanding financial instruments or embedded in a host instrument, whether the warrants are liabilities within the scope of ASC 480, whether the warrants meet the definition of a derivative in ASC 815 and whether the warrants meet the requirements for equity classification pursuant to the indexation and equity classification criteria in ASC 815. The Company determines the classification for its warrants at the time of issuance and updates its assessment, as necessary. Warrants that meet all of the criteria for equity classification are recorded as a component of additional paid-in capital. Net Loss per Share Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The calculation of weighted average number of common shares outstanding excludes shares of restricted common stock that are not vested but includes shares of common stock underlying pre-funded warrants. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period, after giving consideration to the dilutive effect of potentially dilutive common shares. For purposes of this calculation, outstanding options to purchase shares of common stock, unvested shares of restricted common stock and potential shares issuable under the 2020 ESPP are considered potentially dilutive common shares. The Company has generated a net loss in all periods presented so the basic and diluted net loss per share are the same, as the inclusion of the potentially dilutive securities would be anti-dilutive. Recently Adopted Accounting Pronouncements On August 5, 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 eliminates the separation models for convertible debt with cash conversion features and convertible instruments with beneficial conversion features and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. Additionally, ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. The new standard also introduces additional disclosures for convertible instruments. ASU 2020-06 was effective for public companies that are not smaller reporting companies for fiscal years beginning after December 15, 2021. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. ASU 2020-06 is required to be adopted as of the beginning of a fiscal year. ASU 2020-06 may be applied using either a full or modified retrospective method of transition. The Company adopted ASU 2020-06 effective as of January 1. 2023. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements. 3. Marketable Securities The Company did not hold any marketable securities as of September 30, 2023. The following is a summary of the Company's investment portfolio as of December 31, 2022 (in thousands): 9 As of December 31, 2022 Gross Unrealized Estimated Cost Gains Losses Fair Value Available-for-sale securities: Corporate debt securities $ 35,042 $ — $ ( 163 ) $ 34,879 Debt securities issued by U.S. government agencies 4,005 — ( 10 ) 3,995 Total securities with a maturity of one year or less $ 39,047 $ — $ ( 173 ) $ 38,874 Total available-for-sale securities $ 39,047 $ — $ ( 173 ) $ 38,874 As of December 31, 2022, the Company had 7 securities with a total fair market value of $ 38.9 million in an unrealized loss position. The Company anticipated 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, 2023 and 2022. 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: • 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 Company did not hold any financial assets measured at fair value on a recurring basis as of September 30, 2023. The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of December 31, 2022 (in thousands): As of December 31, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 34,181 $ — $ — $ 34,181 Marketable securities: Corporate debt securities — 34,879 — 34,879 Debt securities issued by U.S. government agencies 3,995 — — 3,995 $ 38,176 $ 34,879 $ — $ 73,055 5. Accrued Expenses Accrued expenses consisted of the following (in thousands): 10 September 30, 2023 December 31, 2022 Accrued external research and development expenses $ 4,348 $ 10,734 Accrued personnel-related expenses 2,020 2,803 Accrued other expenses 611 2,313 Total accrued expenses $ 6,979 $ 15,850 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 condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022. This lease qualifies as an operating lease. 7. UCB Option and License Agreement In December 2022, the Company entered into an Option and License Agreement (“the Collaboration Agreement”) with UCB Biopharma SRL (“UCB”) for the discovery of small molecule therapeutics as potential treatments of KCNT1-related epilepsies. Under the terms of the Collaboration Agreement, the Company has agreed to perform general biology-related research services as part of a mutually agreed upon research plan in exchange for a $ 5.0 million upfront payment. In addition, the Company provided UCB an exclusive option to in-license global development and commercialization rights to any resulting KCNT1 small molecule development candidate identified as part of the research plan. If UCB exercises its option to in-license global development and commercialization rights, the Collaboration Agreement stipulates that UCB will assume research, development, manufacturing and commercialization responsibilities and costs. Under the terms of the Collaboration Agreement, the Company will be eligible to receive an option fee and future success-based development and commercialization milestone payments, totaling up to $ 98.5 million, in addition to tiered royalties on net sales of any resulting products from the Collaboration Agreement. The Company concluded that UCB is a customer, and as such, the arrangement falls within the scope of Topic 606. At the commencement of the Collaboration Agreement, the Company identified one performance obligation, which was to perform the research services for UCB. The Company determined the transaction price to be $ 5.0 million, comprised of the upfront payment it received. The option provided to UCB was determined not to be a material right. The Company recognizes revenue for its research services performance obligation over time using an input method over the duration of the research services. During the three and nine months ended September 30, 2023, the Company recognized $ 0.5 million and $ 1.9 million, respectively, in collaboration revenue related to the Collaboration Agreement in the condensed consolidated statement of operations. As of September 30, 2023, $ 3.1 million was included in deferred revenue in the condensed consolidated balance sheet, of which $ 1.6 million was classified as current. 8. Common Stock and Preferred Stock Common Stock As of September 30, 2023 and December 31, 2022, the authorized capital stock of the Company included 150,000,000 shares of common stock, $ 0.0001 par value. As of September 30, 2023 and December 31, 2022, the Company did no t hold any treasury shares. June 2023 Public Offering On June 21, 2023, the Company completed a public offering of: (i) an aggregate of 64,449,690 shares of its common stock at a public offering price of $ 0.95 per share, including the underwriters’ full exercise of their option to purchase 9,299,690 additional shares of common stock, and (ii) pre-funded warrants to purchase 7,050,000 shares 11 of common stock at a public offering price of $ 0.9499 per share of common stock underlying the warrants. The purchase price per share for each pre-funded warrant represents the per share offering price for the common stock, less the $ 0.0001 per share exercise price for each underlying share. Total net proceeds generated from the offering were approximately $ 63.4 million, after deducting underwriting discounts, commissions and other offering expenses payable by the Company. The pre-funded warrants are exercisable at any time on or after the date of issuance at the option of the holder, subject to a beneficial ownership blocker that may limit exercisability. No holder may exercise any portion of the warrants that would cause either the aggregate number of shares of common stock beneficially owned by such holder, together with its affiliates, to exceed 9.99 %, or the combined voting power of the securities beneficially owned by such holder, together with its affiliates, to exceed 9.99 %. A holder of a pre-funded warrant may increase or decrease this percentage up to 19.99 % by providing at least 61 days’ prior notice to the Company. The pre-funded warrants do not expire. The pre-funded warrants may be settled through either physical or net share settlement. Following the occurrence of certain fundamental transactions, the holders of the pre-funded warrants have the right to receive upon exercise of the warrants the same amount and kind of securities, cash, or property as they would have been entitled to receive if they had been holders of the common shares issuable under the warrants immediately prior to such transaction. In the event of certain fundamental transactions where the consideration payable to the holders of shares of common stock consists solely of cash and/or marketable securities, the pre-funded warrants will automatically be deemed to be exercised in full pursuant to a cashless exercise effective immediately prior to and contingent upon the consummation of such transaction. As of September 30, 2023, none of the pre-funded warrants had been exercised and remain outstanding. The Company determined that the pre-funded warrants are freestanding financial instruments because they are both legally detachable and separately exercisable from the common stock sold in the offering. As such, the Company evaluated the pre-funded warrants to determine whether they represent instruments that require liability classification pursuant to the guidance in ASC 480. However, the Company concluded that the pre-funded warrants are not a liability within the scope of ASC 480 due to their characteristics. Further, the Company determined that the pre-funded warrants do not meet the definition of a derivative under ASC 815 because they do not meet the criteria regarding no or little initial net investment. Accordingly, the Company assessed the pre-funded warrants relative to the guidance in ASC No. 815-40, Contracts in Entity’s Own Equity , to determine the appropriate treatment. The Company concluded that the pre-funded warrants are both indexed to its own stock and meet all other conditions for equity classification. Accordingly, the Company has classified the pre-funded warrants as permanent equity. Shares Reserved for Future Issuance The Company has reserved the following shares of common stock for future issuance: September 30, 2023 December 31, 2022 Shares reserved for exercise of outstanding stock options 9,876,256 8,838,028 Shares reserved for exercise of pre-funded warrants 7,050,000 — Shares reserved for future awards under the 2020 Stock Option and Incentive Plan 2,444,985 1,650,955 Shares reserved for future awards under the 2020 Employee Stock Purchase Plan 932,077 839,922 Shares reserved for vesting of restricted stock units 633,615 743,950 Total shares of authorized common stock reserved for future issuance 20,936,933 12,072,855 Preferred Stock As of September 30, 2023 and December 31, 2022, the authorized capital stock of the Company included 10,000,000 shares of undesignated preferred stock, $ 0.0001 par value. 9. 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, 2023 and December 31, 2022 was 9,918,602 shares and 7,449,480 shares, respectively. 2017 Stock Incentive Plan 12 The total number of shares of common stock authorized for issuance under the 2017 Stock Incentive Plan (the "2017 Plan") as of September 30, 2023 and December 31, 2022 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, 2023 and December 31, 2022 was 1,308,408 shares and 981,306 shares, respectively. 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, 2022 743,950 $ 23.07 Issued 316,750 2.85 Vested ( 187,111 ) 26.81 Forfeited ( 239,974 ) 11.72 Unvested as of September 30, 2023 633,615 $ 15.91 As of September 30, 2023, total unrecognized compensation cost related to unvested restricted stock units was $ 7.4 million, which is expected to be recognized over a weighted-average period of 2.04 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, 2022 8,838,028 $ 13.93 Granted 2,925,941 2.78 Exercised ( 49,316 ) 2.07 $ 90 Cancelled or Forfeited ( 1,838,397 ) 12.78 Outstanding as of September 30, 2023 9,876,256 $ 10.90 7.97 $ 222 Exercisable as of September 30, 2023 5,223,043 $ 12.59 7.44 $ 112 Vested and expected to vest as of September 30, 2023 9,876,256 $ 10.90 7.97 $ 222 Valuation of Stock Options 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, 2023: Three Months Ended September 30, Nine Months Ended September 30, 2023 2023 Risk-free interest rate 4.35 % 3.57 % Expected term (in years) 6.00 6.00 Expected volatility 90.01 % 88.30 % Expected dividend yield — % — % Weighted average grant-date fair value per share $ 1.02 $ 2.08 13 As of September 30, 2023, total unrecognized compensation cost related to unvested stock options was $ 29.1 million, which is expected to be recognized over a weighted-average period of 1.68 years. Stock-Based Compensation Stock-based compensation expense was allocated as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Research and development $ 2,035 $ 1,999 $ 6,176 $ 8,200 General and administrative 3,728 4,731 12,955 14,027 Total stock-based compensation expense $ 5,763 $ 6,730 $ 19,131 $ 22,227 10. Net Loss per Share The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have been anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Outstanding stock options 9,876,256 9,159,415 9,876,256 9,159,415 Unvested restricted stock units 633,615 789,419 633,615 789,419 Potential shares issuable under the 2020 ESPP 161,713 48,182 161,713 48,182 10,671,584 9,997,016 10,671,584 9,997,016 Common shares issuable upon exercise of the pre-funded warrants that were sold in connection with the June 2023 underwritten public offering are included in the calculation of weighted average number of common shares outstanding for the three and nine months ended September 30, 2023. Consistent with the guidance in ASC 260-10-45-13, the underlying common shares are issuable for little to no consideration and there are no vesting conditions or contingencies associated with the warrants. Accordingly, the aggregate number of common shares underlying the pre-funded warrants have been considered outstanding for purposes of the calculation of net loss per share from the date of issuance. 11. 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. 12. Restructuring In June 2022, the Company began a strategic realignment across the Cerebrum™ and Solidus™ platforms, 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 was recognized in research and development expenses and $ 0.4 million was recognized in general and administrative expenses in the consolidated statement of operations during the nine months ended September 30, 2022. These costs related to 14 employee severance, benefits and related costs. As of December 31, 2022, all costs related to the strategic realignment had been paid. 13. Subsequent Events 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. 15