10-Q
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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, 2022

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.)

 

 

1500 District Avenue
Burlington, MA

 

01803

(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

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. YesNo

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). YesNo

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

The number of shares of Registrant’s Common Stock, $0.0001 par value per share, outstanding as of August 4, 2022 was 5,340,193.

 

 


 

INDEX TO FORM 10-Q

 

 

 

 

 

Page

 

 

PART I — Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

4

 

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

 

4

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021

 

5

 

 

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the six months ended June 30, 2022 and 2021

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

16

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

22

Item 4.

 

Controls and Procedures

 

22

 

 

 

 

 

 

 

PART II — Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

23

Item 1A.

 

Risk Factors

 

23

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

Item 3.

 

Defaults Upon Senior Securities

 

29

Item 4.

 

Mine Safety Disclosures

 

29

Item 5.

 

Other Information

 

29

Item 6.

 

Exhibits

 

30

 

 

 

 

 

SIGNATURES

 

31

 

 

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” and in our Annual Report on Form 10-K for the year ended December 31, 2021 under Part I, 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,

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

49,753,998

 

 

$

60,755,080

 

Restricted cash

 

100,000

 

 

 

100,000

 

Prepaid expenses and other current assets

 

184,821

 

 

 

1,346,359

 

Total current assets

 

50,038,819

 

 

 

62,201,439

 

 

 

 

 

 

 

Capitalized software, net

 

51,080

 

 

 

51,080

 

Goodwill

 

14,869,399

 

 

 

14,869,399

 

Total assets

$

64,959,298

 

 

$

77,121,918

 

 

 

 

 

 

 

Liabilities and Stockholders’ (Deficit) Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

1,519,729

 

 

$

1,853,215

 

Accrued expenses and other current liabilities

 

1,889,199

 

 

 

965,739

 

Total current liabilities

 

3,408,928

 

 

 

2,818,954

 

Liability related to the sale of future royalties

 

69,932,614

 

 

 

66,327,321

 

Total liabilities

 

73,341,542

 

 

 

69,146,275

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ (deficit) equity

 

 

 

 

 

Preferred stock; $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding as of June 30, 2022 and December 31, 2021, respectively

 

 

 

 

 

Common stock; $0.0001 par value; 125,000,000 shares authorized; 5,340,193 and 5,340,196 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

534

 

 

 

534

 

Additional paid-in capital

 

344,800,764

 

 

 

342,676,508

 

Accumulated deficit

 

(353,183,542

)

 

 

(334,701,399

)

Total stockholders’ (deficit) equity

 

(8,382,244

)

 

 

7,975,643

 

Total liabilities and stockholders’ (deficit) equity

$

64,959,298

 

 

$

77,121,918

 

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,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

4,131,978

 

 

$

5,520,928

 

 

$

9,091,841

 

 

$

8,779,635

 

General and administrative

 

2,833,211

 

 

 

3,442,365

 

 

 

5,862,606

 

 

 

7,691,179

 

Total expenses

 

6,965,189

 

 

 

8,963,293

 

 

 

14,954,447

 

 

 

16,470,814

 

Loss from operations

 

(6,965,189

)

 

 

(8,963,293

)

 

 

(14,954,447

)

 

 

(16,470,814

)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange gains (losses)

 

1,596

 

 

 

(18,997

)

 

 

(2,198

)

 

 

(23,853

)

Investment income

 

72,378

 

 

 

4,566

 

 

 

79,795

 

 

 

8,666

 

Non-cash interest expense for the sale of future royalties

 

(1,826,499

)

 

 

(1,611,439

)

 

 

(3,605,293

)

 

 

(2,907,895

)

Net loss

$

(8,717,714

)

 

$

(10,589,163

)

 

$

(18,482,143

)

 

$

(19,393,896

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

$

(1.63

)

 

$

(1.98

)

 

$

(3.46

)

 

$

(3.63

)

Weighted average shares outstanding, basic and diluted

 

5,340,196

 

 

 

5,340,196

 

 

 

5,340,196

 

 

 

5,340,196

 

See accompanying notes to condensed consolidated financial statements.

5


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

(Unaudited)

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-In Capital

 

 

Deficit

 

 

Total

 

Balances at January 1, 2021

 

5,340,196

 

 

$

534

 

 

$

337,457,514

 

 

$

(284,795,447

)

 

$

52,662,601

 

Stock-based compensation

 

 

 

 

 

 

 

1,516,064

 

 

 

 

 

 

1,516,064

 

Net loss

 

 

 

 

 

 

 

 

 

 

(8,804,733

)

 

 

(8,804,733

)

Balances at March 31, 2021

 

5,340,196

 

 

$

534

 

 

$

338,973,578

 

 

$

(293,600,180

)

 

$

45,373,932

 

Stock-based compensation

 

 

 

 

 

 

 

1,384,060

 

 

 

 

 

 

1,384,060

 

Net loss

 

 

 

 

 

 

 

 

 

$

(10,589,163

)

 

 

(10,589,163

)

Balances at June 30, 2021

 

5,340,196

 

 

$

534

 

 

$

340,357,638

 

 

$

(304,189,343

)

 

$

36,168,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2022

 

5,340,196

 

 

$

534

 

 

$

342,676,508

 

 

$

(334,701,399

)

 

$

7,975,643

 

Stock-based compensation

 

 

 

 

 

 

 

1,052,656

 

 

 

 

 

 

1,052,656

 

Net loss

 

 

 

 

 

 

 

 

 

 

(9,764,429

)

 

 

(9,764,429

)

Balances at March 31, 2022

 

5,340,196

 

 

$

534

 

 

$

343,729,164

 

 

$

(344,465,828

)

 

$

(736,130

)

Stock-based compensation

 

 

 

 

 

 

 

1,071,605

 

 

 

 

 

 

1,071,605

 

Adjustments due to the rounding impact from the reverse stock split for fractional shares

 

(3

)

 

 

 

 

 

(5

)

 

 

 

 

 

(5

)

Net loss

 

 

 

 

 

 

 

 

 

$

(8,717,714

)

 

$

(8,717,714

)

Balances at June 30, 2022

 

5,340,193

 

 

$

534

 

 

$

344,800,764

 

 

$

(353,183,542

)

 

$

(8,382,244

)

See accompanying notes to condensed consolidated financial statements.

6


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(18,482,143

)

 

$

(19,393,896

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Amortization of right-of-use assets

 

 

 

 

86,847

 

Stock-based compensation expense

 

2,124,261

 

 

 

2,900,124

 

Non-cash interest expense associated with the sale of future royalties

 

3,605,293

 

 

 

2,907,895

 

Changes in operating assets and liabilities

 

 

 

 

 

Prepaid expenses and other current assets

 

1,161,538

 

 

 

1,072,687

 

Accounts payable

 

(333,486

)

 

 

598,083

 

Accrued expenses and other current liabilities

 

923,460

 

 

 

781,016

 

Operating lease liabilities, current

 

 

 

 

(94,941

)

Net cash used in operating activities

 

(11,001,077

)

 

 

(11,142,185

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Net cash provided by investing activities

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Fees paid in connection with the reverse stock split fractional shares

 

(5

)

 

 

 

Proceeds from the sale of future royalties

 

 

 

 

60,000,000

 

Net cash (used in) provided by financing activities

 

(5

)

 

 

60,000,000

 

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

 

(11,001,082

)

 

 

48,857,815

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

 

 

 

 

Beginning of period

 

60,855,080

 

 

 

25,456,952

 

End of period

$

49,853,998

 

 

$

74,314,767

 

Reconciliation of the Condensed Consolidated Statements of Cash Flows to the
   Condensed Consolidated Balance Sheets

 

 

 

 

 

Cash and cash equivalents

$

49,753,998

 

 

$

74,214,767

 

Restricted cash

 

100,000

 

 

 

100,000

 

Total cash, cash equivalents and restricted cash

$

49,853,998

 

 

$

74,314,767

 

See accompanying notes to condensed consolidated financial statements.

7


 

MINERVA NEUROSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

As of June 30, 2022 and for the Six Months Ended June 30, 2022 and 2021

(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 product candidates to treat patients suffering from central nervous system (“CNS”) diseases. The Company’s lead product candidate is roluperidone (f/k/a MIN-101), a compound the Company is developing for the treatment of negative symptoms in patients with schizophrenia. The Company holds the license to roluperidone from Mitsubishi Tanabe Pharma Corporation (“MTPC”) with the rights to develop, sell and import roluperidone globally, excluding most of Asia. The Company also has exclusive rights to develop and commercialize MIN-301, a compound for the treatment of Parkinson’s disease. In addition, Minerva previously co-developed seltorexant (f/k/a MIN-202 or JNJ-42847922) with Janssen Pharmaceutica NV (“Janssen”) for the treatment of insomnia disorder and adjunctive treatment of Major Depressive Disorder (“MDD”). During 2020 Minerva exercised its right to opt out of the joint development agreement with Janssen for the future development of seltorexant. As a result, the Company was entitled to collect royalties in the mid-single digits on potential future worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen. In January 2021, the Company sold its rights to these potential royalties to Royalty Pharma plc (“Royalty Pharma”). For further discussion of the joint development agreement with Janssen and the sale of future royalties, please refer to Note 5, Sale of Future Royalties.

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 since inception. As of June 30, 2022, the Company had an accumulated deficit of approximately $353.2 million and net cash used in operating activities was approximately $11.0 million during the six months ended June 30, 2022. Management expects to continue to incur operating losses and negative cash flows from operations in the future. The Company has financed its operations to date from proceeds from the sale of common stock, warrants, loans, convertible promissory notes, collaboration agreements and royalty sales.

As of June 30, 2022, the Company had cash, cash equivalents, and restricted cash of $49.9 million. The Company believes that its existing cash, cash equivalents, and restricted cash 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. 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.

The Company will need to raise additional capital in order to continue to fund operations and fully fund any potential 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. Further, as disclosed in Item 1A, Risk Factors, equity as reported in our Annual Report on Form 10-K for the year ended December 31, 2021 does not satisfy the Nasdaq Global Market continued listing requirement of $10 million as set forth in Nasdaq Stock Market Rule 5450(b)(1). If we fail to evidence compliance upon filing of our Quarterly Report on Form 10-Q for the period ending September 30, 2022, our common stock may be subject to delisting, which could impact our ability to complete additional equity financings 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

COVID-19 Pandemic

The Company’s business could be adversely affected by the effects of the ongoing COVID-19 pandemic. Beginning in late 2019 and continuing into 2022, the outbreak of COVID-19 has resulted in the declaration of a global pandemic and adversely affected economic activity across virtually all sectors and industries on a local, national, and global scale. While global vaccination efforts are underway and certain jurisdictions, including Massachusetts, have reopened businesses and governmental agencies, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the duration of the outbreak, the result of vaccination efforts, resurgence of the virus, actions that may be taken by governmental authorities, the impact on our business including our clinical programs and timelines, and the impact to the business of our service providers and partners.

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, together with rising interest rates, 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, 2022, the results of operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet as of December 31, 2021 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2022.

Reverse Stock Split

On June 17, 2022, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Delaware to effect a one-for-eight (1-for-8) reverse stock split of its outstanding common stock. The Amendment became effective at 5:00 p.m. Eastern Time on June 17, 2022. A series of alternate amendments to effect a reverse stock split was approved by the Company’s stockholders at the Company’s 2022 Annual Meeting of Stockholders held on June 10, 2022, and the specific one-for-eight (1-for-8) reverse stock split was subsequently approved by the Company’s board of directors on June 10, 2022.

The Amendment provided that, at the effective time of the Amendment, every eight (8) shares of the Company’s issued and outstanding common stock automatically combined into one issued and outstanding share of common stock, without any change in par value per share. The reverse stock split affected all shares of the Company’s common stock outstanding immediately prior to the effective time of the Amendment. As a result of the reverse stock split, proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock units and restricted stock awards issued by the Company and outstanding immediately prior to the effective time of the Amendment, which resulted in a proportionate decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock units and restricted stock awards, and, in the case of stock options, a proportionate increase in the exercise price of all such stock options. In addition, the number of shares reserved for issuance under the Company’s equity compensation plans immediately prior to the effective time of the Amendment was reduced proportionately. The reverse stock split did not affect the number of shares of common stock authorized for issuance under the Company’s Amended and Restated Certificate of Incorporation, which remained at 125,000,000 shares.

9


 

No fractional shares were issued as a result of the reverse stock split. Stockholders of record who would otherwise have been entitled to receive a fractional share received a cash payment in lieu thereof. The reverse stock split affected all stockholders proportionately and did not affect any stockholder’s percentage ownership of the Company’s common stock (except to the extent that the reverse stock split results in any stockholder owning only a fractional share). As a result of the reverse stock split, the number of the Company’s outstanding shares of common stock as of June 17, 2022 decreased from 42,721,566 (pre-split) shares to 5,340,193 (post-split) shares.

All share and per share amounts in the accompanying financial statements, related footnotes, and management's discussion and analysis have been adjusted retroactively to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented. The Company’s common stock began trading on The Nasdaq Global Market on a split-adjusted basis when the market opened on June 21, 2022.

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.

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, 2022 and December 31, 2021.

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. The Company believes that the impact of recently issued, but not yet adopted, accounting pronouncements will not have a material impact on the condensed consolidated financial statements or do not apply to the Company.

10


 

NOTE 3 — ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

 

June 30, 2022

 

 

December 31, 2021

 

Research and development costs and other accrued expenses

$

876,058

 

 

$

902,803

 

Accrued bonus

 

762,135

 

 

 

 

Professional fees

 

185,285

 

 

 

62,936

 

Vacation pay

 

65,721

 

 

 

 

Total

$

1,889,199

 

 

$

965,739

 

 

NOTE 4 — NET LOSS PER SHARE OF COMMON STOCK

Diluted loss per share is the same as basic loss per share for all periods presented as the effects of potentially dilutive items were anti-dilutive given the Company’s net loss. Basic loss per share is computed by dividing net loss 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,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss

$

(8,717,714

)

 

$

(10,589,163

)

 

$

(18,482,143

)

 

$

(19,393,896

)

Weighted average shares of common stock outstanding

 

5,340,196

 

 

 

5,340,196

 

 

 

5,340,196

 

 

 

5,340,196

 

Net loss per share of common stock – basic and diluted

$

(1.63

)

 

$

(1.98

)

 

$

(3.46

)

 

$

(3.63

)

The following securities outstanding at June 30, 2022 and 2021 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,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Common stock options

 

467,429

 

 

 

1,215,594

 

 

 

467,429

 

 

 

1,215,594

 

Performance-based restricted stock units

 

456,422

 

 

 

 

 

 

456,422

 

 

 

 

Common stock warrants

 

5,099

 

 

 

5,099

 

 

 

5,099

 

 

 

5,099

 

 

NOTE 5 — SALE OF FUTURE ROYALTIES

The Company had previously co-developed seltorexant with Janssen for the treatment of insomnia disorder and adjunctive treatment of MDD. During 2020, the Company exercised its right to opt out of the joint development agreement with Janssen for the future development of seltorexant and, as a result, the Company was entitled to collect royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no further financial obligations to Janssen.

On January 19, 2021, the Company entered into an agreement with Royalty Pharma under which Royalty Pharma acquired the Company’s royalty interest in seltorexant for an upfront payment of $60 million and up to an additional $95 million in potential milestone payments. These milestone payments are contingent upon the achievement of certain clinical, regulatory and commercial milestones for seltorexant by Janssen or any other party in the event that Janssen sells seltorexant. Under the terms of the agreement, the Company has significant continuing involvement as Royalty Pharma has recourse against the Company relating to the payments due from Janssen. As such, the Company applied the debt recognition guidance under ASC 470, Debt, and recorded the upfront payment of $60 million as a liability related to the sale of future royalties (“Royalty Obligation”), which will be amortized under the interest method over the estimated life of the agreement. Under the terms of the agreement, all payments from Royalty Pharma to the Company, including the initial upfront payment of $60 million as well as amortized interest expense and potential milestone payments, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any reason. In addition, in accordance with ASC 470, Debt, the Company will account for any royalties received in the future as non-cash royalty revenue.

11


 

As royalties are remitted from Janssen to Royalty Pharma, the balance of the Royalty Obligation will be effectively repaid over the life of the co-development and license agreement (the “Agreement”) with Janssen. In order to determine the amortization of the Royalty Obligation, the Company is required to estimate the total amount of future royalty payments to Royalty Pharma over the life of the Agreement. In addition to the $60 million upfront payment, up to an additional $95 million in potential milestone payments will also be recorded as a liability related to the sale of future royalties and amortized as interest expense over the estimated remaining life of the agreement. At execution, the Company’s estimate of this total interest expense resulted in an effective annual interest rate of approximately 10.5%. As of June 30, 2022, the Company estimated the effective annual interest rate to be approximately 10.7%. This estimate contains significant assumptions, which are considered Level 3 fair value inputs, regarding the timing and amount of expected royalty and milestone payments that impact the interest expense that will be recognized over the royalty period. The Company will periodically assess the estimated royalty payments to Royalty Payments from Janssen and to the extent the amount or timing of such payments is materially different than the original estimates, an adjustment will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially affect the amount and timing of royalty payments to Royalty Pharma from Janssen, and correspondingly, the amount of interest expense recorded by the Company, most of which are not within the Company’s control. Such factors include, but are not limited to, delays or discontinuation of development of seltorexant, regulatory approval, changing standards of care, the introduction of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to Royalty Pharma are made in U.S. dollars (“USD”) while the underlying sales of seltorexant will be made in currencies other than USD, the ongoing COVID-19 pandemic, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases to both royalty revenues and interest expense.

The following table shows the activity of the Royalty Obligation since the transaction inception through June 30, 2022:

 

June 30, 2022

 

Upfront payment from the sale of future royalties

$

60,000,000

 

Non-cash interest expense associated with the sale of future royalties

 

9,932,614

 

Liability related to the sale of future royalties

$

69,932,614

 

 

NOTE 6 — STOCKHOLDERS’ EQUITY

At-the-Market Equity Offering Program

On August 10, 2018, the Company entered into the Sales Agreement with Jefferies pursuant to which the Company may offer and sell, from time to time, through Jefferies, up to $50.0 million in shares of the Company's common stock, by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. During the year ended December 31, 2020, the Company issued and sold 422,701 shares of the Company's common stock under the Sales Agreement. The shares were sold at an average price of $29.69 per share for aggregate net proceeds to the Company of approximately $12.1 million, after deducting sales commissions and offering costs payable by the Company. During the six months ended June 30, 2022, no shares of our common stock were issued or sold under the Sales Agreement.

Term Loan Warrants

In connection with the Company’s former Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank (the “Lenders”), which provided for term loans to the Company in an aggregate principal amount of up to $15 million in two tranches on January 15, 2016, the Company issued the Lenders warrants to purchase 5,099 shares of common stock at a per share exercise price of $44.13. The warrants were immediately exercisable upon issuance, and other than in connection with certain mergers or acquisitions, will expire on the ten-year anniversary of the date of issuance. The fair value of the warrants was estimated at $0.2 million using a Black-Scholes model and assuming: (i) expected volatility of 100.8%, (ii) risk free interest rate of 1.83%, (iii) an expected life of 10 years and (iv) no dividend payments. The fair value of the warrants was included as a discount to the term loans drawn at such time and also as a component of additional paid-in capital and were amortized to interest expense over the term of the loan. Although the term loans were repaid in August 2018, all related warrants were outstanding and exercisable as of June 30, 2022.

12


 

NOTE 7 — STOCK AWARD PLAN AND STOCK-BASED COMPENSATION

In December 2013, the Company adopted the 2013 Equity Incentive Plan (as subsequently amended and restated, the “Plan”), which provides for the issuance of options, stock appreciation rights, stock awards and stock units.

Option Exchange Program

On June 11, 2021, the Company’s stockholders, upon recommendation of the board of directors of the Company, approved a one-time stock option exchange program (the “Exchange Program”) for certain employee option holders (including its named executive officers) (the “Eligible Participants”) who remained employed by the Company through the completion of the Exchange Program. The Exchange Program permitted Eligible Participants to surrender stock options issued and outstanding under the Plan granted before July 1, 2020, with a per-share exercise price of $35.76 or greater (the “Eligible Options”), in exchange for a grant of performance-based restricted stock units (“PRSUs”) that will settle in shares of the Company’s common stock upon vesting. 50% of the new PRSUs will vest upon the U.S. Food and Drug Administration’s (“FDA”) acceptance of a new drug application for roluperidone, provided that such acceptance is not “over protest” and occurs within three years after the grant date. The remaining new PRSUs will vest upon roluperidone receiving FDA marketing approval provided that such approval occurs within five years after the grant date.

On July 6, 2021, the Company filed with the SEC a Tender Offer Statement on Schedule TO disclosing the terms and conditions of the Exchange Program. The Exchange Program closed on August 3, 2021. On August 6, 2021, options to purchase 953,980 shares of the Company’s common stock were exchanged for 476,640 PRSUs. Options surrendered in the Exchange Program were cancelled and shares subject to the cancelled options again became available for issuance under the Plan.

The non-cash incremental stock-based compensation cost associated with the Exchange Program was $0.5 million. This incremental cost was measured as the excess of the fair value of each new PRSU, measured as of the date the new PRSUs were granted, over the fair value of the stock options surrendered in exchange for the new PRSU, measured immediately prior to the cancellation. This incremental compensation cost will be recognized when it is deemed probable that the two vesting conditions of the PRSUs will be achieved.

Stock Option Awards

Stock option activity for employees and non-employees for the six months ended June 30, 2022 is as follows:

 

 

Shares
Issuable
Pursuant to
Stock
Options

 

 

Weighted-
Average
Exercise Price

 

 

Weighted-
Average
Remaining
Contractual
Terms
(years)

 

 

Total
Intrinsic
Value (in
thousands)

 

Outstanding January 1, 2022

 

 

264,929

 

 

$

34.10

 

 

 

7.9

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

202,500

 

 

$

6.11

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

 

 

 

Outstanding June 30, 2022

 

 

467,429

 

 

$

21.97

 

 

 

8.4

 

 

$

 

Exercisable June 30, 2022

 

 

160,249

 

 

$

41.98

 

 

 

6.6

 

 

$

 

Available for future grant

 

 

352,166

 

 

 

 

 

 

 

 

 

 

The weighted average grant-date fair value of stock options outstanding on June 30, 2022 was $14.94 per share. Total unrecognized compensation costs related to non-vested stock options at June 30, 2022 were approximately $1.8 million and are expected to be recognized within future operating results over a weighted-average period of 2.1 years. The total intrinsic value of the options exercised during the six months ended June 30, 2022 and 2021 was zero.

The expected term of the employee-related options was estimated using the “simplified” method as defined by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment. The volatility assumption was determined by examining the historical volatilities for industry peer companies, as the Company did not have sufficient trading history for its common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments, the term of which was consistent with the expected term of the options. The dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the options.

13


 

The Company uses the Black-Scholes model to estimate the fair value of stock options granted. For stock options granted during the six months ended June 30, 2022 and 2021, the Company utilized the following assumptions:

 

 

Six Months Ended

 

 

June 30, 2022

 

June 30, 2021

Expected term (years)

 

5.50-6.25

 

5.50

Risk free interest rate

 

1.96%-3.25%

 

0.86%

Volatility

 

76%-97%

 

75%

Dividend yield

 

0%

 

0%

Weighted average grant date fair value per share of common stock

 

$4.78

 

$14.64

 

Performance-Based Restricted Stock Units

On August 6, 2021, the Company granted 476,640 PRSUs through the Exchange Program. The Exchange Program was treated as a Type II modification (Probable-to improbable) under ASC 718. The total PRSUs outstanding at June 30, 2022 was 456,422. The Company will recognize the unrecognized grant-date fair value of the pre-modification stock options as well as any incremental non-cash compensation cost of the PRSUs granted in the Exchange Program, if the vesting conditions of the PRSUs are achieved or if they become probable. The Company is using the pre-modification stock options for determining the compensation cost related to the PRSUs as the vesting conditions remain uncertain for the new PRSUs. The total unrecognized compensation costs related to non-vested stock options at June 30, 2022 were approximately $2.2 million and are expected to be recognized within future operating results over a weighted-average period of 1.1 years. As of June 30, 2022, no PRSUs have vested and 20,218 have been cancelled.

The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Research and development

 

$

514,806

 

 

$

641,373

 

 

$

1,015,979

 

 

$

1,285,549

 

General and administrative

 

 

556,799

 

 

 

742,687

 

 

 

1,108,282

 

 

 

1,614,575

 

Total

 

$

1,071,605

 

 

$

1,384,060

 

 

$

2,124,261

 

 

$

2,900,124

 

 

NOTE 8 — COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of the Company’s business activities. At this time, the Company is not aware of any such legal proceedings or claims. The Company is not aware of any claim or litigation, the outcome of which, if determined adversely to the Company, would have a material effect on the Company’s financial position or results of operations.

Leases

Please refer to Note 9 for the Company’s current lease commitments.

NOTE 9 — LEASES

Operating leases

On May 5, 2021, the Company entered into an office lease agreement with BP Reservoir Place to lease approximately 5,923 rentable square feet of office space located at 1601 Trapelo Road, Waltham, MA 02451. The term of the lease agreement began on August 1, 2021 and expired on July 31, 2022, with an annual rate of $239,881.50 payable in equal monthly installments. The Company has elected to not recognize the lease agreement on the balance sheet as the term of the agreement is 12 months or less. The total operating lease costs during the six months ended June 30, 2022 were $119,941.

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Future minimum lease payments under the Company’s non-cancelable operating lease as of June 30, 2022 were as follows:

 

 

Six Months Ended

 

Future Operating Lease Payments

 

June 30, 2022

 

2022

 

$

19,990

 

Thereafter

 

 

 

Total operating lease liabilities at June 30, 2022

 

$

19,990

 

On May 26, 2022, the Company entered into an office lease agreement with Regus to lease office space located at 1500 District Avenue Burlington, MA 01803. The term of the lease agreement began on July 15, 2022 and will expire on January 31, 2023, with a monthly rate of $7,533.00. The Company has elected to not recognize the lease agreement on the balance sheet as the term of the agreement is 12 months or less. The total operating lease costs during the six months ended June 30, 2022 were $0.

Future minimum lease payments under the Company’s non-cancelable operating lease as of June 30, 2022 were as follows:

 

 

Six Months Ended

 

Future Operating Lease Payments

 

June 30, 2022

 

2022

 

$

41,796

 

2023

 

 

7,533

 

Thereafter

 

 

 

Total operating lease liabilities at June 30, 2022

 

$

49,329

 

 

15


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our annual audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on March 1, 2022.

Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of proprietary product candidates to treat patients suffering from central nervous system (“CNS”) diseases. Leveraging our scientific insights and clinical experience, we have acquired or in-licensed compounds that we believe have innovative mechanisms of actions and therapeutic profiles that potentially address the unmet needs of patients with these diseases.

We are developing rolup