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f

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 001-36517

 

Minerva Neurosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

26-0784194

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

1601 Trapelo Road, Suite 286
Waltham, MA

 

02451

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 600-7373

 

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

NERV

The NASDAQ Global Market

The number of shares of Registrant’s Common Stock, $0.0001 par value per share, outstanding as of July 29, 2020 was 41,204,869.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES      NO 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES      NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐ 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES     NO  

 

 

 

 


 

INDEX TO FORM 10-Q

 

 

 

 

 

Page

 

 

PART I — Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

4

 

 

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

 

4

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2020 and 2019

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

19

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

25

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

 

 

PART II — Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

Item 1A.

 

Risk Factors

 

26

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

Item 3.

 

Defaults Upon Senior Securities

 

28

Item 4.

 

Mine Safety Disclosures

 

28

Item 5.

 

Other Information

 

28

Item 6.

 

Exhibits

 

29

 

 

 

 

 

SIGNATURES

 

30

 

 

 

 

 

 

2


 

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q, or Quarterly Report, to “Minerva,” “the Company,” “we,” “us,” and “our” refer to Minerva Neurosciences, Inc. and, where appropriate, its subsidiaries.

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements reflect our plans, estimates and beliefs. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item IA, “Risk Factors.”

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

 

 

3


 

PART I – Financial Information

Item 1 – Financial Statements

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

June 30,

 

 

December 31,

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

32,252,075

 

 

$

21,412,623

 

Marketable securities

 

2,996,324

 

 

 

24,441,520

 

Restricted cash

 

100,000

 

 

 

100,000

 

Prepaid expenses and other current assets

 

542,746

 

 

 

1,182,483

 

Total current assets

 

35,891,145

 

 

 

47,136,626

 

 

 

 

 

 

 

 

 

Equipment, net

 

7,278

 

 

 

16,011

 

Other noncurrent assets

 

14,808

 

 

 

14,808

 

Operating lease right-of-use assets

 

184,020

 

 

 

261,952

 

In-process research and development

 

15,200,000

 

 

 

15,200,000

 

Goodwill

 

14,869,399

 

 

 

14,869,399

 

Total assets

$

66,166,650

 

 

$

77,498,796

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

3,138,559

 

 

$

2,317,004

 

Accrued expenses and other current liabilities

 

4,079,649

 

 

 

4,139,163

 

Operating leases

 

184,777

 

 

 

172,901

 

Total current liabilities

 

7,402,985

 

 

 

6,629,068

 

Deferred taxes

 

1,803,356

 

 

 

1,803,356

 

Deferred revenue

 

 

 

 

41,175,600

 

Noncurrent operating leases

 

16,288

 

 

 

111,229

 

Total liabilities

 

9,222,629

 

 

 

49,719,253

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Preferred stock; $0.0001 par value; 100,000,000 shares authorized; none issued

   or outstanding as of June 30, 2020 and December 31, 2019, respectively

 

 

 

 

 

Common stock; $0.0001 par value; 125,000,000 shares authorized; 40,644,839 and

   39,084,121 shares issued and outstanding as of June 30, 2020 and

   December 31, 2019, respectively

 

4,065

 

 

 

3,908

 

Additional paid-in capital

 

326,297,963

 

 

 

314,511,853

 

Accumulated deficit

 

(269,358,007

)

 

 

(286,736,218

)

Total stockholders’ equity

 

56,944,021

 

 

 

27,779,543

 

Total liabilities and stockholders’ equity

$

66,166,650

 

 

$

77,498,796

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaborative revenue

$

41,175,600

 

 

$

 

 

$

41,175,600

 

 

$

 

Total revenues

 

41,175,600

 

 

 

 

 

 

41,175,600

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

5,766,984

 

 

$

8,319,612

 

 

$

13,849,494

 

 

$

19,925,809

 

General and administrative

 

5,900,518

 

 

 

4,584,361

 

 

 

10,089,586

 

 

 

9,290,035

 

Total expenses

 

11,667,502

 

 

 

12,903,973

 

 

 

23,939,080

 

 

 

29,215,844

 

Gain (loss) from operations

 

29,508,098

 

 

 

(12,903,973

)

 

 

17,236,520

 

 

 

(29,215,844

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange losses

 

(3,661

)

 

 

(6,718

)

 

 

(13,053

)

 

 

(13,031

)

Investment income

 

24,939

 

 

 

434,220

 

 

 

154,744

 

 

 

925,204

 

Net income (loss)

$

29,529,376

 

 

$

(12,476,471

)

 

$

17,378,211

 

 

$

(28,303,671

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic

$

0.75

 

 

$

(0.32

)

 

$

0.44

 

 

$

(0.73

)

Weighted average shares outstanding, basic

 

39,483,187

 

 

 

39,025,471

 

 

 

39,330,389

 

 

 

38,996,949

 

Net income (loss) per share, diluted

$

0.73

 

 

$

(0.32

)

 

$

0.43

 

 

$

(0.73

)

Weighted average shares outstanding, diluted

 

40,278,071

 

 

 

39,025,471

 

 

 

40,144,996

 

 

 

38,996,949

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-In Capital

 

 

Deficit

 

 

Total

 

Balances at January 1, 2019

 

38,937,971

 

 

$

3,894

 

 

$

304,813,603

 

 

$

(214,552,728

)

 

$

90,264,769

 

Exercise of stock options

 

87,500

 

 

 

9

 

 

 

524,991

 

 

 

 

 

 

525,000

 

Stock-based compensation

 

 

 

 

 

 

 

2,461,699

 

 

 

 

 

 

2,461,699

 

Net loss

 

 

 

 

 

 

 

 

 

 

(15,827,200

)

 

 

(15,827,200

)

Balances at March 31, 2019

 

39,025,471

 

 

 

3,903

 

 

 

307,800,293

 

 

 

(230,379,928

)

 

 

77,424,268

 

Stock-based compensation

 

 

 

 

 

 

 

2,320,392

 

 

 

 

 

 

2,320,392

 

Net loss

 

 

 

 

 

 

 

 

 

 

(12,476,471

)

 

 

(12,476,471

)

Balances at June 30, 2019

 

39,025,471

 

 

$

3,903

 

 

$

310,120,685

 

 

$

(242,856,399

)

 

$

67,268,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2020

 

39,084,121

 

 

$

3,908

 

 

$

314,511,853

 

 

$

(286,736,218

)

 

$

27,779,543

 

Exercise of stock options

 

135,013

 

 

 

14

 

 

 

797,615

 

 

 

 

 

 

797,629

 

Stock-based compensation

 

 

 

 

 

 

 

2,198,187

 

 

 

 

 

 

2,198,187

 

Net loss

 

 

 

 

 

 

 

 

 

 

(12,151,165

)

 

 

(12,151,165

)

Balances at March 31, 2020

 

39,219,134

 

 

$

3,922

 

 

$

317,507,655

 

 

$

(298,887,383

)

 

$

18,624,194

 

Issuance of common stock in a public

   offering

 

1,361,956

 

 

 

136

 

 

 

5,178,324

 

 

 

 

 

 

5,178,460

 

Costs related to issuance of common

   stock

 

 

 

 

 

 

 

(219,517

)

 

 

 

 

 

(219,517

)

Exercise of stock options

 

63,749

 

 

 

7

 

 

 

346,019

 

 

 

 

 

 

346,026

 

Stock-based compensation

 

 

 

 

 

 

 

3,485,482

 

 

 

 

 

 

3,485,482

 

Net income

 

 

 

 

 

 

 

 

 

 

29,529,376

 

 

 

29,529,376

 

Balances at June 30, 2020

$

40,644,839

 

 

$

4,065

 

 

$

326,297,963

 

 

$

(269,358,007

)

 

$

56,944,021

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

6


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

17,378,211

 

 

$

(28,303,671

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

8,733

 

 

 

8,734

 

Accretion of marketable securities premium

 

(83,098

)

 

 

(501,227

)

Amortization of right-of-use assets

 

77,932

 

 

 

70,143

 

Stock-based compensation expense

 

5,683,669

 

 

 

4,782,091

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

639,737

 

 

 

452,516

 

Accounts payable

 

821,555

 

 

 

1,142,122

 

Accrued expenses and other current liabilities

 

(59,514

)

 

 

2,676,073

 

Operating lease liabilities, current

 

11,876

 

 

 

26,052

 

Deferred revenue

 

(41,175,600

)

 

 

 

Operating lease liabilities, noncurrent

 

(94,941

)

 

 

(83,065

)

Net cash used in operating activities

 

(16,791,440

)

 

 

(19,730,232

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from the maturity and redemption of marketable securities

 

25,400,000

 

 

 

30,000,000

 

Purchase of marketable securities

 

(3,871,706

)

 

 

(33,184,947

)

Net cash provided (used in) by investing activities

 

21,528,294

 

 

 

(3,184,947

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from sales of common stock in public offering

 

5,178,460

 

 

 

 

Fees paid in connection with public offering

 

(219,517

)

 

 

 

Proceeds from exercise of stock options

 

1,143,655

 

 

 

525,000

 

Net cash provided by financing activities

 

6,102,598

 

 

 

525,000

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

10,839,452

 

 

 

(22,390,179

)

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

Beginning of period

 

21,512,623

 

 

 

50,334,871

 

End of period

$

32,352,075

 

 

$

27,944,692

 

Reconciliation of the Condensed Consolidated Statements of Cash Flows to the

   Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

Cash and cash equivalents

$

32,252,075

 

 

$

27,844,692

 

Restricted cash

 

100,000

 

 

 

100,000

 

Total cash, cash equivalents and restricted cash

$

32,352,075

 

 

$

27,944,692

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

7


 

MINERVA NEUROSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

As of June 30, 2020 and for the Six Months Ended June 30, 2020 and 2019

(Unaudited)

 

NOTE 1 — NATURE OF OPERATIONS AND LIQUIDITY

Nature of Operations

Minerva Neurosciences, Inc. (“Minerva” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat patients suffering from central nervous system diseases. The Company’s lead product candidate is roluperidone (also known as MIN-101), a compound the Company is developing for the treatment of negative symptoms in patients with schizophrenia, and MIN-301, a compound the Company is developing for the treatment of Parkinson’s disease. In addition, the Company possesses a potential royalty stream from seltorexant (also known as MIN-202 or JNJ-42847922), a compound that is being developed by Janssen Pharmaceutica NV (“Janssen”) for the treatment of insomnia disorder and major depressive disorder (“MDD”).

In November 2013, the Company merged with Sonkei Pharmaceuticals Inc. (“Sonkei”), a clinical-stage biopharmaceutical company and, in February 2014, the Company acquired Mind-NRG, a pre-clinical-stage biopharmaceutical company. The Company refers to these transactions as the Sonkei Merger and Mind-NRG Acquisition, respectively. The Company holds licenses to roluperidone and MIN-117 from Mitsubishi Tanabe Pharma Corporation (“MTPC”) with the rights to develop, sell and import roluperidone and MIN-117 globally, excluding most of Asia. With the acquisition of Mind-NRG, the Company obtained exclusive rights to develop and commercialize MIN-301.

Liquidity

The accompanying interim condensed consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has limited capital resources and has incurred recurring operating losses and negative cash flows from operations in each year since inception. As of June 30, 2020, the Company has an accumulated deficit of approximately $269.4 million and net cash used in operating activities was approximately $16.8 million during the six months ended June 30, 2020. Management expects to continue to incur operating losses and negative cash flows from operations. The Company has financed its operations to date from proceeds from the sale of common stock, warrants, loans and convertible promissory notes.

As of June 30, 2020, the Company had cash, cash equivalents, restricted cash, and marketable securities of $35.3 million. The Company believes that its existing cash, cash equivalents, restricted cash and marketable securities will be sufficient to meet its cash commitments for at least the next 12 months after the date that the interim condensed consolidated financial statements are issued. As a result of the roluperidone Phase 3 study not achieving a statistically significant improvement on its primary and secondary endpoints, we have significantly decreased our operating plan spending levels. We plan to maintain the lower level of spending while we are completing additional detailed analyses of data from this trial, following which we plan to request a meeting with the U.S. FDA to consult about the potential next steps in the development of roluperidone. Therefore, the year-to-date cash used is not representative of the future cash commitments and spending for the next 12 months after the date that the interim condensed financial statements are issued. The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain. The assumptions upon which the Company has based its estimates are routinely evaluated and may be subject to change. The actual amount of the Company’s expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of the Company’s research and development programs, the infrastructure to support a commercial enterprise, the cost of a commercial product launch, and the level of financial resources available. The Company has the ability to adjust its operating plan spending levels based on the timing of future clinical trials, which will be predicated upon adequate funding to complete the trials. During June 2020, as described in Note 6, the Company issued and sold 1,361,956 shares of the Company's common stock under the Sales Agreement. The shares were sold at an average price of $3.802 per share for aggregate net proceeds to the Company of approximately $5.0 million, after deducting sales commissions and offering costs payable by the Company. During the period from July 1, 2020 through July 29, 2020, the Company issued and sold 678,434 shares of the Company's common stock under the Sales Agreement. The shares were sold at an average price of $3.6168 per share for aggregate net proceeds to the Company of approximately $2.4 million, after deducting sales commissions and offering costs payable by the Company.

The Company will need to raise additional capital in order to continue to fund operations and fully fund later stage clinical development programs. The Company believes that it will be able to obtain additional working capital through equity financings or other arrangements to fund future operations; however, there can be no assurance that such additional financing, if available, can be obtained on terms acceptable to the Company. If the Company is unable to obtain such additional financing, future operations would need to be scaled back or discontinued.

8


 

Significant Risks and Uncertainties

The Company’s business could be adversely affected by the effects of the ongoing COVID-19 pandemic, which continues to have a negative impact on the local, regional, national and global scale. In response to the pandemic, a number of jurisdictions in which the Company or its service providers operate implemented shelter-in-place or similar type restrictions, which limited on-site activity to certain service providers. Additionally, the Company’s headquarters are located in Massachusetts, which implemented such restrictions. In response, the Company implemented work-from-home policies for its employees, which continue to be in effect. While certain jurisdictions, including Massachusetts have begun a phased re-opening of businesses and governmental agencies, there remain limitations on the physical operations of businesses and prohibitions on certain non-essential gatherings, and it is unclear if such phased re-openings will continue or be rolled back, and there is uncertainty about when, if, or how the Company’s workforce may return. The effects of the state executive order, local shelter-in-place orders, government-imposed quarantines and the Company’s work-from-home policies, including the uncertainty about their duration, may negatively impact productivity, disrupt our business and delay the clinical programs and timelines.  

While the COVID-19 pandemic has not had a material adverse impact on the Company’s operations to date, this disruption, if sustained or recurrent, could have a material adverse effect on the Company’s operating results, its ability to raise capital needed to develop and commercialize products and the Company’s overall financial condition. In addition, a recession or market correction resulting from the spread of the coronavirus could materially affect the value of the Company’s common stock. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Quarterly Report on Form 10-Q. Refer to Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q for a complete description of the material risks that the Company currently faces.

 

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting and the requirements of the Securities and Exchange Commission (“SEC”) in accordance with Regulation S-X, Rule 8-03. Under those rules, certain notes and financial information that are normally required for annual financial statements can be condensed or omitted. In the opinion of the Company’s management, the accompanying financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of June 30, 2020, the results of operations for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. When preparing financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The consolidated balance sheet as of December 31, 2019 was derived from the audited annual financial statements. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2020.

Consolidation

The accompanying consolidated financial statements include the results of the Company and its wholly-owned subsidiaries, Mind-NRG Sarl and Minerva Neurosciences Securities Corporation. Intercompany transactions have been eliminated.

Significant risks and uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.

The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.

9


 

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash equivalents include short-term, highly-liquid instruments, consisting of money market accounts and short-term investments with maturities from the date of purchase of 90 days or less. The majority of cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand which reduces counterparty performance risk.

 

Restricted cash

Cash accounts with any type of restriction are classified as restricted. The Company maintained restricted cash balances as collateral for corporate credit cards in the amount of $0.1 million at each of June 30, 2020 and December 31, 2019.

Marketable securities

 

Marketable securities consist of corporate and U.S. government debt securities maturing in two months or less. Based on the Company’s intentions regarding its marketable securities, all marketable securities are classified as held-to-maturity and are carried under the amortized cost approach. The Company’s investments in marketable securities are classified as Level 2 within the fair value hierarchy. As of June 30, 2020, remaining final maturities of marketable securities ranged from July 2020 to August 2020, with a weighted average remaining maturity of approximately one month. The following tables provide the amortized cost basis, aggregate fair value, unrealized gains/losses, and the net carrying value of investments in held-to-maturity securities as of June 30, 2020 and December 31, 2019:

 

 

June 30, 2020

 

 

Amortized

 

 

Aggregate

 

 

Unrealized

 

 

Unrealized

 

 

Net Carrying

 

 

Cost

 

 

Fair Value

 

 

Gains

 

 

Losses

 

 

Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

$

2,996,324

 

 

$

2,996,324

 

 

$

 

 

$

 

 

$

2,996,324

 

Marketable securities total

$

2,996,324

 

 

$

2,996,324

 

 

$

 

 

$

 

 

$

2,996,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

Amortized

 

 

Aggregate

 

 

Unrealized

 

 

Unrealized

 

 

Net Carrying

 

 

Cost

 

 

Fair Value

 

 

Gains

 

 

Losses

 

 

Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds/notes

$

2,701,114

 

 

$

2,700,678

 

 

$

436

 

 

$

 

 

$

2,701,114

 

Commercial paper

 

19,245,921

 

 

 

19,245,921

 

 

 

 

 

 

 

 

 

19,245,921

 

U.S. government agency securities

 

2,494,485

 

 

 

2,495,675

 

 

 

 

 

 

(1,190

)

 

 

2,494,485

 

Marketable securities total

$

24,441,520

 

 

$

24,442,274

 

 

$

436

 

 

$

(1,190

)

 

$

24,441,520

 

 

Research and development costs

Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on behalf of the Company and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions. The Company determines expenses related to clinical studies based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations (“CROs”) that conduct and manage clinical studies on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the accrual is adjusted accordingly. The expenses for some trials may be recognized on a straight-line basis if the anticipated costs are expected to be incurred ratably during the period. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expenses. 

10


 

In-process research and development

In-process research and development (“IPR&D”) assets represent capitalized incomplete research projects that the Company acquired through business combinations. Such assets are initially measured at their acquisition date fair values. The initial fair value of the research projects are recorded as intangible assets on the balance sheet, rather than expensed, regardless of whether these assets have an alternative future use.

The amounts capitalized are being accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion or abandonment of research and development efforts associated with the project. An IPR&D asset is considered abandoned when it ceases to be used (that is, research and development efforts associated with the asset have ceased, and there are no plans to sell or license the asset or derive defensive value from the asset). At that point, the asset is considered to be disposed of and is written off. Upon successful completion of each project, the Company will make a determination about the then remaining useful life of the intangible asset and begin amortization. The Company tests its indefinite-lived intangibles, IPR&D assets, for impairment annually on November 30 and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. When testing indefinite-lived intangibles for impairment, the Company may assess qualitative factors for its indefinite-lived intangibles to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the asset is impaired. Alternatively, the Company may bypass this qualitative assessment for some or all of its indefinite-lived intangibles and perform the quantitative impairment test that compares the fair value of the indefinite-lived intangible asset with the asset’s carrying amount. There was no impairment of IPR&D for the three and six months ended June 30, 2020 or 2019.

Impairment of MIN-117 In-process Research and Development Asset.

As a result of the Company’s Phase 2b trial of MIN-117 in adult patients suffering from moderate to severe MDD not meeting its primary and key secondary endpoints and the Company’s decision not to further the clinical development of MIN-117 in MDD, the Company determined that the MIN-117 IPR&D is fully impaired and recognized a $19.0 million expense, which was included as a component of research and development expense, during the year ended December 31, 2019.

Stock-based compensation

The Company recognizes compensation cost relating to stock-based payment transactions using a fair-value measurement method, which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. The Company determines the fair value of stock-based awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate fair value. The method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options. Forfeitures are recorded as they occur instead of estimating forfeitures that are expected to occur. The fair value of restricted stock units (“RSUs”) is equal to the closing price of the Company’s common stock on the date of grant.

An accounting policy change was made by the Company related to the accounting for non-employee awards on January 1, 2019 as a result of the adoption of ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting for which the Company now accounts for non-employee awards in the same manner as employee awards.

The date of expense recognition for grants to non-employees is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instrument is reached or the date at which the counterparty’s performance is complete. The Company determines the fair value of stock-based awards granted to non-employees similar to the way fair value of awards are determined for employees except that certain assumptions used in the Black-Scholes option-pricing model, such as expected life of the option, may be different.

Foreign currency transactions

The Company’s functional currency is the U.S. Dollar. The Company pays certain vendor invoices in the respective foreign currency. The Company records an expense in U.S. Dollars at the time the liability is incurred. Changes in the applicable foreign currency rate between the date an expense is recorded and the payment date is recorded as a foreign currency gain or loss.

11


 

Income (loss) per share

Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity. The treasury stock method is used to determine the dilutive effect of the Company’s stock options and warrants.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents and marketable securities. The Company maintains its cash and cash equivalent balances in the form of business checking accounts and money market accounts, the balances of which, at times, may exceed federally insured limits. Exposure to cash and cash equivalents credit risk is reduced by placing such deposits with major financial institutions and monitoring their credit ratings. Marketable securities consist primarily of corporate bonds, with fixed interest rates. Exposure to credit risk of marketable securities is reduced by maintaining a diverse portfolio and monitoring their credit ratings.

Equipment

Equipment is stated at cost less accumulated depreciation. Equipment is depreciated on the straight-line basis over their estimated useful lives of three years. Expenditures for maintenance and repairs are charged to expense as incurred.

 

Leases

 

Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), using the required modified retrospective approach and utilizing the effective date as its date of initial application, for which prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).

 

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis.

 

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in the Company’s leases is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term and in a similar economic environment. In transition to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates.

 

In accordance with ASC 842, components of a lease should be allocated between lease components (e.g., land, building, etc.) and non-lease components (e.g., common area maintenance, consumables, etc.). The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

 

Although separation of lease and non-lease components is required, certain expedients are available. Entities may elect the practical expedient to not separate lease and non-lease components by class of underlying asset where entities would account for each lease component and the related non-lease component together as a single component. For new and amended leases beginning in 2019 and after, the Company has elected to account for the lease and non-lease components for leases for classes of all underlying assets and allocate all of the contract consideration to the lease component only.

12


 

Long-lived assets

The Company reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. If required, the Company compares the estimated undiscounted future net cash flows to the related asset’s carrying value to determine whether there has been an impairment. If an asset is considered impaired, the asset is written down to fair value, which is based either on discounted cash flows or appraised values in the period the impairment becomes known. The Company believes that all long-lived assets are recoverable, and no impairment was deemed necessary at June 30, 2020 and 2019.

Goodwill

The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its reporting unit’s carrying value to its fair value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances. The Company tests its goodwill for impairment as of November 30. There was no impairment of goodwill for the six months ended June 30, 2020 and 2019.

Revenue recognition

The Company applies the revenue recognition guidance in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and title has passed, the price is fixed or determinable, and collectability is reasonably assured. The Company is a development stage company and has had no revenues from product sales to date.

When the Company enters into an arrangement that meets the definition of a collaboration under ASC 808, Collaborative Arrangements, the Company recognizes revenue as research and development is performed and its respective share of the expenses are incurred. The Company assesses whether the arrangement contains multiple elements or deliverables, which may include (1) licenses to the Company's technology, (2) research and development activities performed for the collaboration partner, and (3) participation on Joint Steering Committees. Payments may include non-refundable, upfront payments, milestone payments upon achieving significant development events, and royalties on future sales. Each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has “stand-alone value” to the customer. The arrangement’s consideration is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-party evidence of selling price, and (iii) best estimate of selling price. The best estimate of selling price reflects the Company’s best estimate of what the selling price would be if the deliverable was regularly sold by the Company on a stand-alone basis. The consideration allocated to each unit of accounting is then recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. Supply or service transactions may involve the charge of a nonrefundable initial fee with subsequent periodic payments for future products or services. The up-front fees, even if nonrefundable, are recognized as revenue as the products and/or services are delivered and performed over the term of the arrangement. During the three and six months ended June 30, 2020, the Company recognized $41.2 million in collaborative revenue as a result of opting out of its agreement with Janssen (see Note 5).

Deferred revenue

The Company applies the revenue recognition guidance in accordance with ASC 606. Using ASC 606, revenue that is unearned is deferred. Deferred revenue that is expected to be recognized as revenue more than one year subsequent to the balance sheet date is classified as long-term deferred revenue.

Segment information

Operating segments are defined as components of an enterprise (business activity from which it earns revenue and incurs expenses) about which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief decision maker, who is the Chief Executive Officer, reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company views its operations and manages its business as one operating segment.

13


 

Comprehensive loss

The Company had no items of comprehensive loss other than its net loss for each period presented.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the FASB and are adopted by the Company as of the specified effective date.

 

Recently adopted accounting pronouncements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This update is intended to clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606. The Company adopted the new standard on January 1, 2020.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350). The new standard simplifies the test for goodwill impairment. The Company adopted the new standard on January 1, 2020.

 

NOTE 3 — ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

 

 

June 30, 2020

 

 

December 31, 2019

 

Research and development costs and other accrued expenses

$

2,089,634

 

 

$

3,824,950

 

Accrued Severance

 

788,923

 

 

 

 

Accrued bonus

 

832,148

 

 

 

 

Professional fees

 

253,466

 

 

 

314,213

 

Vacation pay

 

115,478

 

 

 

 

 

$

4,079,649

 

 

$

4,139,163

 

 

 

NOTE 4 — NET INCOME (LOSS) PER SHARE OF COMMON STOCK

Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding. Diluted income per share is computed by dividing the net income by the weighted average number of shares of common stock outstanding, plus potential outstanding common stock for the period. Potential outstanding common stock includes stock options and shares underlying RSUs, but only to the extent that their inclusion is dilutive. The following table sets forth the computation of basic and diluted loss per share for common stockholders:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

$

29,529,376

 

 

$

(12,476,471

)

 

$

17,378,211

 

 

$

(28,303,671

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock

   outstanding - basic

 

39,483,187

 

 

 

39,025,471

 

 

 

39,330,389

 

 

 

38,996,949

 

Dilutive effect

 

794,884

 

 

 

 

 

 

814,607

 

 

 

 

Weighted average shares of common stock

   outstanding - diluted

 

40,278,071

 

 

 

39,025,471

 

 

 

40,144,996

 

 

 

38,996,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per ordinary share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.75

 

 

$

(0.32

)

 

$

0.44

 

 

$

(0.73

)

Diluted

$

0.73

 

 

$

(0.32

)

 

$

0.43

 

 

$

(0.73

)

 

14


 

The following securities outstanding at June 30, 2020 and 2019 have been excluded from the calculation of weighted average shares outstanding as their effect on the calculation of loss per share is antidilutive:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Common stock options

 

6,528,386

 

 

 

8,508,672

 

 

 

6,528,386

 

 

 

8,508,672

 

Restricted stock units

 

48,650

 

 

 

127,300

 

 

 

48,650

 

 

 

127,300

 

Common stock warrants

 

40,790

 

 

 

40,790

 

 

 

40,790

 

 

 

40,790

 

 

 

NOTE 5 — CO-DEVELOPMENT AND LICENSE AGREEMENT

On February 13, 2014, the Company signed a co-development and license agreement (the “Agreement”) with Janssen, which became effective upon completion of the Company’s initial public offering and provided for the payment of a $22.0 million license fee by the Company. Under the Agreement, Janssen, the licensor, granted the Company an exclusive license, with the right to sublicense, in the Minerva Territory, under (i) certain patent and patent applications to sell products containing any orexin 2 compound, controlled by the licensor and claimed in a licensor patent right as an active ingredient, and (ii) seltorexant for any use in humans.

The Company has accounted for the Agreement as a joint risk-sharing collaboration in accordance with ASC 808, Collaborative Arrangements.