What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-08 compared with 2022-05-10 · 100 added, 82 removed, 248 unchanged (42% of the section changed)

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We have two ongoing Phase 1/2a open-label studies of STK-001, MONARCH in the United States and ADMIRAL in the United Kingdom.

We also have SWALLOWTAIL which is an Open Label Extension (OLE) study of STK-001 for children and adolescents with Dravet syndrome in the United States.

Patients who participated in the MONARCH study and meet study entry criteria are eligible to continue treatment in SWALLOWTAIL which is designed to evaluate the long-term safety and tolerability of repeated doses of STK-001.

We also have SWALLOWTAIL which is an Open Label Extension (OLE) study of STK-001 for children and adolescents with Dravet syndrome in the United States, and in May 2022 began dosing patients in LONGWING which is an OLE study of STK-001 for children and adolescents with Dravet syndrome in the United Kingdom.

Patients who participated in the MONARCH study in the United States or the ADMIRAL study in the United Kingdom and meet study entry criteria are eligible to continue treatment in SWALLOWTAIL or LONGWING, respectively, both of which are designed to evaluate the long-term safety and tolerability of repeated doses of STK-001.

We are also pursuing treatment for a second haploinsufficient disease, autosomal dominant optic atrophy (“ADOA”), the most common inherited optic nerve disorder.

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STK-002 is designed to upregulate OPA1 protein expression by leveraging the non-mutant (wild-type) copy of the OPA1 gene to restore OPA1 protein expression with the aim to stop or slow vision loss in patients with ADOA.

In July 2020, we filed a universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”).

The Registration Statement was declared effective by the SEC on July 20, 2020, and contains two prospectuses:

a base prospectus, which covers the offering, issuance and sale by us of up to a maximum aggregate offering price of $400,000,000 of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities;

and a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $150,000,000 of our common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement (“Sales Agreement”), which amount is included in the $400,000,000 base prospectus.

As of March 31, 2022, we had issued approximately 2,086,000 shares of common stock at a weighted average price of $20.77 resulting in net proceeds of $42.2 million under the Sales Agreement.

Since April 1, 2022, we sold approximately 138,000 shares of our common stock and received net proceeds of $3.1 million under the Sales Agreement.

We may terminate this at-the-market program at any time, pursuant to its terms.

As of March 31, 2022 and December 31, 2021 we had $293.8 million and $220.4 million, respectively, in cash, cash equivalents, marketable securities and restricted cash.

In May 2022, we presented new preclinical data for STK-002 demonstrating in-vivo , dose-related target engagement and OPA1 protein upregulation with sustained effect in non-human primate (NHP) retinal tissue following administration of STK-002.

Additionally, a dose-related increase in OPA1 protein was also detected in retinal ganglion cells of NHPs treated with STK-002.

In July 2020, we filed a universal Shelf Registration statement on Form S-3 (the “Prior Registration Statement”) with the Securities and Exchange Commission (the “SEC”).

On May 31, 2022, the Prior Registration Statement was deactivated upon the effectiveness of the Registration Statement (as defined below).

As of such date, we had issued approximately 2.2 million shares of common stock under the Prior Registration Statement for net proceeds of $45.3 million.

In May 2022, we filed an additional universal Shelf Registration statement on Form S-3 (the “Registration Statement”) with the SEC.

The Registration Statement was declared effective by the SEC on May 31, 2022, and contains two prospectuses:

a base prospectus, which covers the offering, issuance and sale by us of up to a maximum aggregate offering price of $400,000,000 of our common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, subscription rights to purchase common stock, preferred stock or debt securities and/or units consisting of some or all of these securities;

and a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $150,000,000 of common stock that may be issued and sold under a Controlled Equity Offering Sales Agreement (“Sales Agreement”).

The specific terms of any securities to be offered pursuant to the base prospectus will be specified in a prospectus supplement to the base prospectus.

The $150,000,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $400,000,000 of securities that may be offered, issued and sold by us under the base prospectus.

As of June 30, 2022, we had not issued any shares pursuant to the Sales Agreement, nor did we issue any shares subsequent to June 30, 2022.

As of June 30, 2022 and December 31, 2021 we had $276.2 million and $220.4 million, respectively, in cash, cash equivalents, marketable securities and restricted cash.

Since inception, we have had operating losses, the majority of which are attributable to research and development activities.

Our net losses were $24.6 million and $16.8 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we had an accumulated deficit of $220.7 million.

Our net losses were $24.7 million and $22.0 million for the three months ended June 30, 2022 and 2021, respectively and $49.3 million and $38.8 million for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, we had an accumulated deficit of $245.4 million.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures.

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Our net losses 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.

Based upon our current operating plan, we believe that our existing cash, cash equivalents , marketable securities and restricted cash as of March 31, 2022 , will enable us to fund our operating expenses and capital expenditure requirements into 2025 .

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities and restricted cash as of June 30, 2022, will enable us to fund our operating expenses and capital expenditure requirements into 2025.

To date, we have not had any products approved for sale and have not generated any product sales.

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If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.

License and Collaboration Agreement with Acadia Pharmaceuticals Inc.

In January 2022, we entered into a license and collaboration agreement with Acadia Pharmaceuticals Inc.

(“Acadia”) for the discovery, development and commercialization of novel RNA-based medicines for the treatment of severe and rare genetic neurodevelopmental diseases of the central nervous system (CNS).

The agreement focuses on the targets SYNGAP1, MECP2 (Rett syndrome), and an undisclosed neurodevelopmental target of mutual interest.

In connection with each target, we will collaborate with Acadia to identify potential treatments for further development and commercialization as licensed products.

With respect to SYNGAP1, we have agreed with Acadia to co-develop and co-commercialize licensed products for such target globally, and in connection therewith we granted to Acadia worldwide, co-exclusive (with us) licenses for such licensed products.

With respect to MECP2 and the neurodevelopmental target, we granted to Acadia worldwide, exclusive licenses to develop and commercialize licensed products for such targets.

Pursuant to the terms of the agreement, we received an upfront payment of $60 million from Acadia.

Acadia agreed to fund the research to identify potential licensed products for MECP2 and the neurodevelopmental target, and we will equally fund with Acadia the research to identify potential licensed products for SYNGAP1.

We are eligible to receive up to $907,500,000 in potential total milestone payments based upon the achievement of certain development, regulatory, first commercial sales and sales milestone events across the programs for the three targets, assuming each milestone were achieved at least once.

With respect to licensed products for MECP2 and the neurodevelopmental target, we are also eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide.

Royalties payable under the agreement are subject to standard royalty reductions.

For SYNGAP1 licensed products that we are co-developing and co-commercializing, we will be responsible for 50% of the development and commercialization costs and will receive 50% of the profits from global commercialization.

The Company is provided with a co-development and co-commercialization opt out option relating to the SYNGAP1 target indication at the Company’s discretion.

Such opt-out would reduce development and commercialization milestones but would provide the Company with royalties on an escalating basis attributable to net sales milestones.

Business Update Regarding COVID-19

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Currently we are monitoring patient enrollment and participation in our clinical trials and our observational study, including the duration and degree to which we may see declines in enrollment, delays in conducting in-person follow-ups, and disruptions in our ability to monitor patients due to hospitals closing sites or diverting the resources that are necessary to conduct our clinical trials and our observational study.

for some of our clinical trial activities due to hospitals closing sites and/or diverting the resources that are necessary to conduct clinical trials.

While we continue to enroll and dose patients in our clinical trials at sites across the United States and the United Kingdom, we take into consideration that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trial activities due to hospitals closing sites and/or diverting the resources that are necessary to conduct clinical trials.

We are pursuing approaches to help mitigate the impact to our clinical trials.

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For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A.

Risk Factors included in this quarterly report Form 10-Q.

Risk Factors included in this quarterly report F orm 10 - Q .

Financial operations overview

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We do not allocate employee costs, costs associated with our technology or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are currently deployed across multiple product development programs and, as such, are not separately classified.

We use internal resources to manage our development activities and our employees work across multiple development programs and, therefore, we do not track their costs by program.

We use internal resources to

manage our development activities and our employees work across multiple development programs and, therefore, we do not track their costs by program.

The table below summarizes our research and development expenses incurred by development program (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Non-program specific and unallocated research and

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A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates.

For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.

trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.

We expect our research and development expenses to increase for the foreseeable future as we continue the development of product candidates.

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Our other income (expense), includes (i) interest income earned on cash reserves in our operating money market fund, investment accounts and on our marketable securities investments and (ii) other items of income (expense), net.

Results of operations for the three months ended March 31, 2022 and 20 2 1

Results of operations for the three months ended June 30, 2022 and 2021

The following table sets forth our results of operations:

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands)

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Research and development expenses

Research and development expenses were $18.3 million for the three months ended March 31, 2022 as compared to $9.9 million for the three months ended March 31, 2021, an increase of $8.4 million.

Research and development expenses were $18.4 million for the three months ended June 30, 2022 as compared to $14.1 million for the three months ended June 30, 2021, an increase of $4.3 million.

The table below summarizes our research and development expenses (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Personnel-related expenses

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Total research and development expenses

The increase in research and development expenses were primarily attributable to an increase of $2.0 million in personnel costs resulting from an increase in headcount, an increase of $3.0 million in expenses related to our STK-001 program and $1.9 million related to our STK-002 program, which is comprised of third-party services and scientific consulting fees and an increase of $1.5 million in external third party expense related to SYNGAP1, MECP2, facilities and other costs and non-project specific consulting and third-party services, materials and other costs.

The increase in research and development expenses were primarily attributable to an increase of $1.7 million in personnel costs resulting from an increase in headcount, an increase of $0.3 million in expenses related to our STK-001 program and $1.1 million related to our STK-002 program, which is comprised of third-party services and scientific consulting fees, an increase of $0.3 million in external third party expense related to SYNGAP1 and MECP2 and an increase of $0.9 million in expense related to facilities and other costs and non-project specific consulting and third-party services, materials and other costs.

The increases in expense reflect the accelerating pace of research and development activities and the increases in personnel, facilities and, third party services to support those activities.

General and administrative expenses

General and administrative expenses were $9.5 million for the three months ended March 31, 2022 as compared to $6.9 million for the three months ended March 31, 2021, an increase of $2.6 million.

General and administrative expenses were $10.1 million for the three months ended June 30, 2022 as compared to $7.9 million for the three months ended June 30, 2021, an increase of $2.2 million.

The increase in general and administrative expenses were primarily attributable to an increase of $1.5 million in personnel costs resulting from an increase in headcount, and an increase of $0.7 million in third-party services to support our in-house personnel in various aspects of developing and supporting the business including human resources, information technology, audit, tax, public relations, communications and other general and administrative activities.

Other income (expense)

The change in our other income (expense) for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 primarily reflects an increase in marketable securities balances.

The change in our other income (expense) for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 primarily reflects an increase in marketable securities balances as well as increased interest rates.

Results of operations for the six months ended June 30, 2022 and 2021

The following table sets forth our results of operations:

Six Months Ended June 30,

(in thousands)

Condensed consolidated statements of operations:

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income:

Interest income (expense), net

Other income (expense), net

Total other income

Research and development expenses

Research and development expenses were $36.7 million for the six months ended June 30, 2022 as compared to $24.0 million for the six months ended June 30, 2021, an increase of $12.7 million.

The table below summarizes our research and development expenses (in thousands):

Six Months Ended June 30,

Personnel-related expenses

Third-party services

Scientific consulting

Facilities and other research and development expenses

Total research and development expenses

The increase in research and development expenses were primarily attributable to an increase of $6.5 million in personnel costs resulting from an increase in headcount, an increase of $3.3 million in expenses related to our STK-001 program and $3.0 million related to our STK-002 program, which is comprised of third-party services and scientific consulting fees and an increase of $0.3 million in external third party expense related to SYNGAP1 and MECP2 offset by a decrease of $0.4 million related to facilities and other costs and non-project specific consulting and third-party services, materials and other costs.

The increases in expense reflect the accelerating pace of research and development activities and the increases in personnel, facilities and, third party services to support those activities.

General and administrative expenses

General and administrative expenses were $19.6 million for the six months ended June 30, 2022 as compared to $14.9 million for the six months ended June 30, 2021, an increase of $4.7 million.

The increase in general and administrative expenses were primarily attributable to an increase of $3.8 million in personnel costs resulting from an increase in headcount, and an increase of $0.9 million in third-party services to support our in-house personnel in various aspects of developing and supporting the business including human resources, information technology, audit, tax, public relations, communications and other general and administrative activities and expenses including stock compensation expense.

Other income (expense)

The change in our other income (expense) for the six months ended June 30, 2022 as compared to the three months ended June 30, 2021 primarily reflects an increase in marketable securities balances as well as increased interest rates.

Liquidity and capital resources

Since our inception through March 31, 2022, our operations have been financed by net proceeds of $487.4 million from the sale of convertible notes payable and our convertible preferred stock, our initial public offering, follow-on offering, proceeds from the controlled equity offering sales agreement and the upfront payment from Acadia.

As of March 31, 2022, we had $293.8 million in cash, cash equivalents, marketable securities, and restricted cash.

Since our inception through June 30, 2022, our operations have been financed by net proceeds of $490.5 million from the sale of convertible notes payable and our convertible preferred stock, our initial public offering, follow-on offering, proceeds from the controlled equity offering sales agreements and the upfront payment from Acadia.

As of June 30, 2022, we had $276.2 million in cash, cash equivalents, marketable securities, and restricted cash.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

We have incurred losses since our inception in June 2014 and, as of March 31, 2022 and 2021, we had accumulated deficits of $220.7 million and $127.1 million, respectively.

We have incurred losses since our inception in June 2014 and, as of June 30, 2022 and 2021, we had accumulated deficits of $245.4 million and $149.0 million, respectively.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Pursuant to our license and collaboration agreement with Acadia, we are eligible to receive up to $907,500,000 in potential total milestone payments based upon the achievement of certain development, regulatory, first commercial sales and sales milestone events.

Pursuant to our license and collaboration agreement with Acadia, we are eligible to receive up to $907.5 million in potential total milestone payments based upon the achievement of certain development, regulatory, first commercial sales and sales milestone events.

With respect to certain licensed products, we are also eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net sales by Acadia of licensed products worldwide.

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Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, costs relating to the build-out of our headquarters and manufacturing facility, license payments or milestone obligations that may arise, laboratory and related supplies, clinical costs, manufacturing costs, legal and other regulatory expenses and general overhead costs.

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities, and restricted cash as of March 31, 2022, will enable us to fund our operating expenses and capital expenditure requirements into 2025.

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities, and restricted cash as of June 30, 2022, will enable us to fund our operating expenses and capital expenditure requirements into 2025.

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

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The following table summarizes our cash flows:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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Operating activities

During the three months ended March 31, 2022, cash provided by operating activities was $32.5 million.

During the six months ended June 30, 2022, cash provided by operating activities was $12.6 million.

This was primarily attributable to $55.8 million in deferred revenue received as part of the Acadia collaboration and to non-cash charges of $14.6 million for share-based compensation, depreciation, amortization and accretion of marketable securities, and reduction in the carrying amount of right of use assets, offset by a net loss of $49.3 million and by a net change of $8.5 million in our net operating assets and liabilities.

During the three months ended March 31, 2021, cash used in operating activities was $20.1 million and was primarily attributable to a net loss of $16.8 million, partially offset by non-cash charges of $3.2 million for share-based compensation, depreciation, and reduction in the carrying amount of right of use assets, and a net change of $6.6 million in our net operating assets and liabilities.

During the six months ended June 30, 2021, cash used in operating activities was $36.0 million and was primarily attributable to a net loss of $38.8 million, partially offset by non-cash charges of $8.2 million for share-based compensation, depreciation, and reduction in the carrying amount of right of use assets, and a net change of $5.4 million in our net operating assets and liabilities.

Investing activities

Our investing activities during the three months ended March 31, 2022 and 2021 have consisted of purchases of property and equipment as well as purchases and sales of marketable securities.

Our investing activities during the six months ended June 30, 2022 and 2021 have consisted of purchases of property and equipment as well as purchases and sales of marketable securities.

Financing activities

Our financing activities during the three months ended March 31, 2022 consisted of $0.1 million from the exercise of stock options and $0.2 million in proceeds from our Employee Stock Purchase Plan and $42.2 million of proceeds from the controlled equity offering sales agreement.

Our financing activities during the three months ended March 31, 2021 consisted of $0.4 million from the exercise of stock options and $0.2 million in proceeds from our Employee Stock Purchase Plan.

Our financing activities during the six months ended June 30, 2022 consisted of $0.4 million from the exercise of stock options, $0.2 million in proceeds from our Employee Stock Purchase Plan and $45.3 million of net proceeds from the controlled equity offering sales agreements.

Our financing activities during the six months ended June 30, 2021 consisted of $0.5 million from the exercise of stock options and $0.2 million in proceeds from our Employee Stock Purchase Plan.

Contractual obligations and commitments

The following table summarizes our contractual obligations as of March 31, 2022 and the effects that such obligations are expected to have on our liquidity and cash flows in future fiscal periods:

The following table summarizes our contractual obligations as of June 30, 2022 and the effects that such obligations are expected to have on our liquidity and cash flows in future fiscal periods:

Payments Due by Fiscal Period

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Our commitments primarily consist of obligations under our agreements with CSHL and the University of Southampton.

As of March 31, 2022, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

As of June 30, 2022, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

For additional information regarding our agreements, see Note 6—Commitments and Contingencies of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q .

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Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, and financial instruments.

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and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company only applies the five-step analysis to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

As part of the accounting for these arrangements, the Company must use significant judgment to determine:

We only apply the five-step analysis to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

As part of the accounting for these arrangements, we must use significant judgment to determine:

(a) the number of performance obligations based on the determination under step (ii) above;

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and (c) the timing of satisfaction of performance obligations as a measure of progress in step (v) above.

For contracts determined to be within the scope of ASC 606, the Company assesses whether the goods or services promised within each contract are distinct to identify those that are performance obligations.

For contracts determined to be within the scope of ASC 606, we assess whether the goods or services promised within each contract are distinct to identify those that are performance obligations.

This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship.

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(i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

In assessing whether a promise or performance obligation is distinct from the other promises, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace.

In addition, the Company considers whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promise, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise.

For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

The licenses of the Company’s intellectual property granted to Acadia was not determined to be distinct from the other promises or performance obligations, i.e., research and development services, identified in the arrangement.

In assessing whether a promise or performance obligation is distinct from the other promises, we consider factors such as the research, development, manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace.

In addition, we consider whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promise, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise.

For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

The licenses of our intellectual property granted to Acadia were not determined to be distinct from the other promises or performance obligations, i.e., research and development services, identified in the arrangement.

Accordingly, such licenses are therefore combined with research and development services in the arrangement.

Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.

The transaction price (the amount of consideration the Company expects to be entitled to from a customer in exchange for the promised good or services) is determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis.

Payments or reimbursements resulting from our research and development efforts are recognized as the services are performed and presented on a gross basis because we are the principal for such efforts.

The transaction price (the amount of consideration we expect to be entitled to from a customer in exchange for the promised good or services) is determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis.

SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied.

The Company uses significant judgment to determine whether milestone payments or other variable consideration, except for royalties, should be included in the transaction price.

The transaction price is allocated to each performance obligation based on the relative standalone selling prices of each performance obligation in the contract, and the Company recognizes revenue based on those amounts when, or as, the performance obligations under the contract are satisfied.

We use significant judgment to determine whether milestone payments or other variable consideration, except for royalties, should be included in the transaction price.

The transaction price is allocated to each performance obligation based on the relative standalone selling prices of each performance obligation in the contract, and we recognize revenue based on those amounts when, or as, the performance obligations under the contract are satisfied.

Any variable consideration is constrained, and therefore, the cumulative revenue associated with this consideration is not recognized until it is deemed not to be at significant risk of reversal.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation(s) when (or as) each performance obligation is satisfied, either at a point in time or over time, and if over time recognition is based on the appropriate method of measuring progress for purposes of recognizing revenue.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation(s) when (or as) each performance obligation is satisfied, either at a point in time or over time, and if over time recognition is based on the appropriate method of measuring progress for purposes of recognizing revenue.

We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Amounts received prior to being recognized as revenue are recorded as deferred revenue.

Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated

balance sheets.

Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets.

Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.

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If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise.

The Company evaluates the customer options for material rights, that is, the option to acquire additional goods or services for free or at a discount.

We evaluate the customer options for material rights, that is, the option to acquire additional goods or services for free or at a discount.

If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement.

The Company allocates the transaction price to material rights based on the standalone selling price.

As a practical alternative to estimating the standalone selling price when the goods or services are both (i) similar to the original goods and services in the contract and (ii) provided in accordance with the terms of the original contract, the Company allocates the total amount of consideration expected to be received from the customer to the total goods or services expected to be provided to the customer.

We allocate the transaction price to material rights based on the standalone selling price.

As a practical alternative to estimating the standalone selling price when the goods or services are both (i) similar to the original goods and services in the contract and (ii) provided in accordance with the terms of the original contract, we allocate the total amount of consideration expected to be received from the customer to the total goods or services expected to be provided to the customer.

Amounts allocated to any material right are not recognized as revenue until the option is exercised and the performance obligation is satisfied.

No such material rights were identified in the arrangement with Acadia.

If such material rights were identified, then the Company would allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option.

If such material rights were identified, then we would allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option.

Amounts allocated to a material right are not recognized or begin to be recognized as revenue until, at the earliest, the option is exercised.

Milestone payments:

At the inception of each arrangement that includes milestone payments, the Company evaluates whether a significant reversal of cumulative revenue provided in conjunction with achieving the milestones is probable, and estimates the amount to be included in the transaction price using the most likely amount method.

At the inception of each arrangement that includes milestone payments, we evaluate whether a significant reversal of cumulative revenue provided in conjunction with achieving the milestones is probable, and estimate the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price.

Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

For other milestones, the Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment.

Milestone payments that are not within the control of us or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

For other milestones, we evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment.

There is considerable judgment involved in determining whether it is probable that a significant reversal of cumulative revenue would not occur.

At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price.

At the end of each subsequent reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

The development milestones in the Acadia arrangement are not considered probable of achievement at the outset of the arrangement.

For additional discussion of accounting for collaboration revenues, see Note 7 of our condensed consolidated financial statements.

Emerging growth company and smaller reporting company status

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If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial

statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recently adopted and recently issued accounting pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis