Minerva Neurosciences, Inc.
Minerva Neurosciences, Inc. (Form: 10-Q, Received: 05/04/2017 06:33:32)

 

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 March 31, 2017

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 284
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)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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

 

 (Do not check if smaller reporting company)

  

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 May 1, 2017 was 36,704,872.

 

 

 


 

INDEX TO FORM 10-Q

 

 

 

 

 

Page

 

 

PART I — Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

4

 

 

Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

 

4

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016

 

5

 

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2017 and 2016

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016

 

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

 

27

Item 4.

 

Controls and Procedures

 

27

 

 

 

 

 

 

 

PART II — Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

29

Item 1A.

 

Risk Factors

 

29

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

58

Item 3.

 

Defaults Upon Senior Securities

 

58

Item 4.

 

Mine Safety Disclosures

 

58

Item 5.

 

Other Information

 

58

Item 6.

 

Exhibits

 

59

 

 

 

 

 

SIGNATURES

 

60

 

 

 

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 within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. 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


 

P ART I – Financial Information

Item 1 – Financial Statements

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

68,894,824

 

 

$

82,980,609

 

Marketable securities

 

16,464,539

 

 

 

-

 

Restricted cash

 

80,000

 

 

 

80,000

 

Prepaid expenses and other current assets

 

791,513

 

 

 

803,241

 

Total current assets

 

86,230,876

 

 

 

83,863,850

 

 

 

 

 

 

 

 

 

Equipment, net

 

6,338

 

 

 

9,640

 

In-process research and development

 

34,200,000

 

 

 

34,200,000

 

Goodwill

 

14,869,399

 

 

 

14,869,399

 

Total assets

$

135,306,613

 

 

$

132,942,889

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Notes payable - current portion

$

4,958,966

 

 

$

4,853,753

 

Accounts payable

 

3,275,442

 

 

 

1,468,341

 

Accrued expenses and other current liabilities

 

1,673,384

 

 

 

815,813

 

Accrued collaborative expenses - related party

 

3,078,250

 

 

 

2,547,952

 

Total current liabilities

 

12,986,042

 

 

 

9,685,859

 

Notes payable - noncurrent

 

2,600,558

 

 

 

3,841,062

 

Deferred taxes

 

13,433,760

 

 

 

13,433,760

 

Total liabilities

 

29,020,360

 

 

 

26,960,681

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

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

   or outstanding as of March 31, 2017 and December 31, 2016, respectively

 

-

 

 

 

-

 

Common stock; $0.0001 par value; 125,000,000 shares authorized; 36,704,872 and

   35,024,002 shares issued and outstanding as of March 31, 2017 and

   December 31, 2016, respectively

 

3,671

 

 

 

3,502

 

Additional paid-in capital

 

249,785,412

 

 

 

238,836,940

 

Accumulated deficit

 

(143,502,830

)

 

 

(132,858,234

)

Total stockholders’ equity

 

106,286,253

 

 

 

105,982,208

 

Total liabilities and stockholders’ equity

$

135,306,613

 

 

$

132,942,889

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

4


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended

March 31,

 

 

2017

 

 

2016

 

Expenses

 

 

 

 

 

 

 

Research and development

$

7,614,331

 

 

$

5,374,864

 

General and administrative

 

2,870,742

 

 

 

2,382,042

 

Total expenses

 

10,485,073

 

 

 

7,756,906

 

Loss from operations

 

(10,485,073

)

 

 

(7,756,906

)

 

 

 

 

 

 

 

 

Foreign exchange losses

 

(16,683

)

 

 

(9,512

)

Investment income

 

58,662

 

 

 

32,364

 

Interest expense

 

(201,502

)

 

 

(270,356

)

Net loss

$

(10,644,596

)

 

$

(8,004,410

)

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

$

(0.30

)

 

$

(0.29

)

Weighted average shares outstanding, basic and diluted

 

35,369,601

 

 

 

27,202,710

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

5


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-In Capital

 

 

Deficit

 

 

Total

 

Balances at January 1, 2016

 

24,721,143

 

 

$

2,472

 

 

$

157,129,947

 

 

$

(101,812,862

)

 

$

55,319,557

 

Exercise of common stock warrants

 

3,039,514

 

 

 

304

 

 

 

17,543,771

 

 

 

-

 

 

 

17,544,075

 

Issuance of common stock

 

181,488

 

 

 

18

 

 

 

999,981

 

 

 

 

 

 

 

999,999

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

790,228

 

 

 

-

 

 

 

790,228

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,004,410

)

 

 

(8,004,410

)

Balances at March 31, 2016

 

27,942,145

 

 

$

2,794

 

 

$

176,463,927

 

 

$

(109,817,272

)

 

$

66,649,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2017

 

35,024,002

 

 

$

3,502

 

 

$

238,836,940

 

 

$

(132,858,234

)

 

$

105,982,208

 

Exercise of common stock warrants

 

1,621,073

 

 

 

162

 

 

 

9,356,671

 

 

 

 

 

 

 

9,356,833

 

Exercise of stock options

 

59,797

 

 

 

7

 

 

 

281,758

 

 

 

 

 

 

 

281,765

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

1,310,043

 

 

 

 

 

 

 

1,310,043

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,644,596

)

 

 

(10,644,596

)

Balances at March 31, 2017

 

36,704,872

 

 

$

3,671

 

 

$

249,785,412

 

 

$

(143,502,830

)

 

$

106,286,253

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

6


 

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(10,644,596

)

 

$

(8,004,410

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

3,302

 

 

 

4,320

 

Amortization of debt discount recorded as interest expense

 

67,034

 

 

 

94,116

 

Amortization of marketable securities premium

 

(1,897

)

 

 

59,820

 

Stock-based compensation expense

 

1,310,043

 

 

 

790,228

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

26,547

 

 

 

566,212

 

Accounts payable

 

1,807,101

 

 

 

(136,610

)

Accrued expenses and other current liabilities

 

857,571

 

 

 

577,238

 

Accrued collaborative expenses

 

530,298

 

 

 

-

 

Other noncurrent liabilities

 

-

 

 

 

-

 

Net cash used in operating activities

 

(6,044,597

)

 

 

(6,049,086

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from the maturity and redemption of marketable securities

 

-

 

 

 

8,043,000

 

Purchase of marketable securities

 

(16,477,461

)

 

 

-

 

Net cash (used in) provided by investing activities

 

(16,477,461

)

 

 

8,043,000

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from exercise of common stock warrants

 

9,356,833

 

 

 

17,544,075

 

Proceeds from exercise of stock options

 

281,765

 

 

 

-

 

Repayments of notes payable

 

(1,202,325

)

 

 

-

 

Proceeds from sale of common stock in private placement

 

-

 

 

 

999,999

 

Net cash provided by financing activities

 

8,436,273

 

 

 

18,544,074

 

Net (decrease) increase in cash and cash equivalents

 

(14,085,785

)

 

 

20,537,988

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

82,980,609

 

 

 

14,284,054

 

End of period

$

68,894,824

 

 

$

34,822,042

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid for interest

$

141,532

 

 

$

176,250

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

7


 

MINERVA NEUROSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

As of March 31, 2017 and for the Three Months Ended March 31, 2017 and 2016

(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, or (“CNS”), diseases. The Company has acquired or in-licensed four development-stage proprietary compounds that it believes have innovative mechanisms of action and therapeutic profiles that may potentially address the unmet needs of patients with these diseases. The Company’s lead product candidate is MIN-101, a compound the Company is developing for the treatment of schizophrenia. In addition, the Company’s portfolio includes MIN-202 (also known as JNJ-42847922), a compound the Company is co-developing with Janssen Pharmaceutica NV (“Janssen”), for the treatment of insomnia disorder and major depressive disorder (“MDD”); MIN-117, a compound the Company is developing for the treatment of MDD; and MIN-301, a compound the Company is developing for the treatment of Parkinson’s disease.

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 MIN-101 and MIN-117 from Mitsubishi Tanabe Pharma Corporation (“MTPC”) with the rights to develop, sell and import MIN-101 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. The Company has also entered into a co-development and license agreement with Janssen, for the exclusive right to commercialize, and the co-exclusive right (with Janssen and its affiliates) to use and develop, MIN-202 in the European Union, Switzerland, Liechtenstein, Iceland and Norway (the “Minerva Territory”), subject to royalty payments to Janssen, and royalty rights for any sales outside the Minerva Territory.

Liquidity

The accompanying 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 March 31, 2017, the Company has an accumulated deficit of approximately $143.5 million and net cash used in operating activities was approximately $6.0 million during the three months ended March 31, 2017. 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.

The Company believes that its existing cash, cash equivalents 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 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 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 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


 

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 10-01. 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 March 31, 2017, the results of operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016. The results of operations for the three months ended March 31, 2017, 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, 2016 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, 2016 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2017.

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; however, these deposits may be redeemed upon demand and, therefore, bear minimal 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 $80,000 at March 31, 2017 and December 31, 2016.

9


 

Marketable securities

Marketable securities consist of corporate debt securities maturing in twelve 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 at amortized cost. The Company’s investments in marketable securities are classified as Level 2 within the fair value hierarchy. As of March 31, 2017, remaining final maturities of marketable securities ranged from July 2017 to August 2017, with a weighted average remaining maturity of approximately 4 months. The following table provides the amortized cost basis, aggregate fair value, net unrealized (gains)/losses and the net carrying value of investments in held-to-maturity securities as of March 31, 2017:  

 

 

March 31, 2017

 

 

Amortized

 

 

Aggregate

 

 

Net Unrealized

 

 

Net Carrying

 

 

Cost

 

 

Fair Value

 

 

(Gains)/Losses

 

 

Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds - current

$

16,464,539

 

 

$

16,464,664

 

 

$

(125

)

 

$

16,464,539

 

 

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 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 expected 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.

In July 2014, the Company entered into a co-development and license agreement. The Company accounts for the co-development and license agreement as a joint risk-sharing collaboration in accordance with ASC 808,  Collaboration Arrangements . Costs between the Company and the licensor with respect to each party’s share of development costs that have been incurred pursuant to the joint development plan are recorded within research and development expenses or general and administrative expenses, as applicable, in the accompanying consolidated financial statements due to the joint risk-sharing nature of the activities. During the three months ended March 31, 2017 and 2016, the Company recorded an expense of $3.2 million and a cost offset of $0.1 million, respectively, for certain development activities in accordance with the terms of the co-development agreement. The Company has included $3.1 million and $2.5 million in accrued collaborative expenses as of March 31, 2017 and December 31, 2016, respectively, related to this agreement.

 

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 months ended March 31, 2017 or 2016.

10


 

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, expected forfeiture rate and expected life of the options. 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.

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 and the fair value of each unvested award is adjusted at the end of each period for any change in fair value from the previous valuation until the award vests.

Foreign currency transactions

The Company’s functional currency is the US dollar. The Company pays certain vendor invoices in the respective foreign currency. The Company records an expense in US 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.

Loss per share

Basic loss per share excludes dilution and is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted 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 Company had a net loss in all periods presented, thus the inclusion of stock options and warrants would be anti-dilutive to net loss per share.

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.

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 March 31, 2017 and 2016.

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 three months ended March 31, 2017 and 2016.

11


 

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.

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 Financial Accounting Standards Board (“FASB”) and are adopted by the Company as of the specified effective date.

Recently Adopted Accounting Pronouncements

In March 2016, the FASB issued Accounting Standards Update (“ASU”) No 2016-09, Compensation – Stock Compensation (Topic 718). The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under this guidance, a company recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the statement of operations. This change eliminates the notion of the additional paid-in capital pool and reduces the complexity in accounting for excess tax benefits and tax deficiencies. The new standard is effective for public companies for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods; however, early adoption is allowed. The Company adopted the new standard on January 1, 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases . The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Refer to Note 9, Commitments and Contingencies, for the Company's current lease commitments. The Company is currently evaluating the impact of the pending adoption of the new standard on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (Topic 230). The new standard clarifies the treatment of several cash flow categories. In addition, ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period.  The Company is currently evaluating the impact of the pending adoption of the new standard on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No 2017-4, Intangibles — Goodwill and Other (Topic 350). The new standard simplifies the Test for Goodwill Impairment. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the impact of the pending adoption of the new standard on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU No 2017-8, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt Securities. The new standard is intended to enhance the accounting for the amortization of premiums for purchased callable debt securities. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the impact of the pending adoption of the new standard on the Company’s consolidated financial statements.

 

12


 

NOTE 3 — ACCRUED EXPENSES

Accrued expenses and other liabilities consist of the following:  

 

 

March 31,

2017

 

 

December 31,

2016

 

Research and development costs and other accrued

   expenses

$

1,155,204

 

 

$

574,290

 

Professional fees

 

213,213

 

 

 

192,000

 

Accrued bonus

 

221,648

 

 

 

-

 

Interest payable

 

42,459

 

 

 

49,523

 

Vacation payable

 

40,860

 

 

 

-

 

 

$

1,673,384

 

 

$

815,813

 

 

 

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 issuances 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 common shares outstanding. The following table sets forth the computation of basic and diluted loss per share for common stockholders:

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

Net loss

$

(10,644,596

)

 

$

(8,004,410

)

Weighted average shares of common stock outstanding

 

35,369,601

 

 

 

27,202,710

 

Net loss per share of common stock – basic and diluted

$

(0.30

)

 

$

(0.29

)

The following securities outstanding at March 31, 2017 and 2016 have been excluded from the calculation of weighted average shares outstanding as their effect on the calculation of loss per share is antidilutive:

 

 

March 31,

 

 

2017

 

 

2016

 

Common stock options

 

4,059,346

 

 

 

3,388,698

 

Restricted stock units

 

219,600

 

 

 

 

Common stock warrants

 

40,790

 

 

 

3,282,937

 

 

 

NOTE 5 — DEBT

Loan and Security Agreement

On January 16, 2015, the Company entered into a Loan and Security Agreement (as amended, the “Loan Agreement”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and, together with Oxford, the “Lenders”), providing for term loans to the Company in an aggregate principal amount of up to $15 million, in two tranches (the “Term Loans”).

The Company drew down the initial Term Loans in the aggregate principal amount of $10 million (the “Term A Loans”), on January 16, 2015. The Term A Loans bear interest at a fixed rate of 7.05% per annum. The Company believes that the Company's debt obligations accrue interest at rates which approximate prevailing market rates for instruments with similar characteristics and, accordingly, the carrying values for these instruments approximate fair value.

In August 2015, the Lenders and the Company entered into a First Amendment to the Loan Agreement, amending certain milestones related to the six month extension of the interest-only repayment period of the Term A Loans.  By raising at least $30.0 million in gross capital (including at least $20.0 million from the sale of equity securities) and completing the first dosing of its Phase I/II clinical trial for MIN-117 prior to December 31, 2015, the Company achieved the interest-only milestones under the Loan Agreement and elected to extend the interest-only period an additional six months and reduce the repayment term by six months. Through August 1, 2016, the Company was obligated only to make monthly interest payments on the outstanding principal balance on the Term A Loans, followed by 24 months of equal principal and interest payments.

13


 

On or prior to March 31, 2016, th e Company was permitted to borrow additional term loans in the aggregate principal amount up to $5 million, subject to the satisfaction of certain borrowing conditions, including the Company’s achievement of primary endpoints on its Phase IIa trials for MI N-117 and MIN-202 programs. In June 2016, the Company irrevocably elected not to borrow the additional $5 million available under the Term Loans.

The Company paid a facility fee of $75,000 for access to the Term Loans and will be required to pay a final payment of 5.1% of the total amount borrowed, which has been included as a component of the debt discount and is amortized to interest expense over the term of the loans.  The outstanding Term A Loans and debt discount are as follows:

 

 

 

March 31, 2017

 

Term A Loans

 

$

7,227,092

 

Less: debt discount and financing costs

 

 

(72,943

)

Less: current portion

 

 

(4,958,966

)

Accrued portion of final payment

 

 

405,375

 

Long-term portion

 

$

2,600,558

 

 

For the three months ended March 31, 2017 and 2016, the Company recognized interest expense of $0.2 million and $0.3 million respectively, including $0.1 million in both periods , related to the debt discount.  

The Term Loans mature on August 1, 2018. The Company may prepay all, but not less than all, of the loaned amount upon 30 days’ advance notice to the Lenders, provided that the Company will be obligated to pay a prepayment fee equal to (i) 3% of the outstanding balance, if the loan is prepaid within 24 months of the funding date, (ii) 2% of the outstanding balance, if the loan is prepaid between 24 and 36 months of the funding date and (iii) 1% of the outstanding balance, if the loan is prepaid thereafter (each, a “Prepayment Fee”).    The expected remaining repayment of the $10.0 million Term A loan principal is as follows:

 

2017

 

 

3,736,388

 

2018

 

 

3,490,704

 

Total Term A Loans

 

$

7,227,092

 

 

The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets, other than its intellectual property. The Company has also agreed not to pledge or otherwise encumber its intellectual property assets, except that it may grant certain exclusive and non-exclusive licenses of its intellectual property as set forth in the Loan Agreement. In addition, the Company pledged all of its equity interests in Minerva Neurosciences Securities Corporation and 65% of its equity interests in Mind-NRG, Sarl as security for its obligations under the Loan Agreement.

Upon the occurrence of certain events, including but not limited to the Company’s failure to satisfy its payment obligations under the Loan Agreement, the breach of certain of its other covenants under the Loan Agreement, or the occurrence of a material adverse change, the Lenders will have the right, among other remedies, to declare all principal and interest immediately due and payable, to take control of the Company’s cash in its SVB deposit account, and will have the right to receive the final payment fee and, if the payment of principal and interest is due prior to maturity, the applicable Prepayment Fee. As of March 31, 2017, the Company was in compliance with all covenants set forth in the Loan Agreement.

 

NOTE 6 — CO-DEVELOPMENT AND LICENSE AGREEMENT

On February 13, 2014, the Company signed a co-development and license agreement with Janssen, subject to the completion of an initial public offering and the payment of a $22.0 million license fee. 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) MIN-202 for any use in humans. In addition, upon regulatory approval in the Minerva Territory (and earlier if certain default events occur), the Company will have rights to manufacture MIN-202, also known as JNJ-42847922. The Company has granted to the licensor an exclusive license, with the right to sublicense, under all patent rights and know-how controlled by the Company related to MIN-202 to sell MIN-202 outside the Minerva Territory. In consideration of the licenses granted on July 7, 2014, the Company made a license fee payment of $22.0 million, which was included as a component of research and development expense in 2014. The Company will pay a quarterly royalty percentage to the licensor in the high single digits on aggregate net sales for MIN-202 products sold by the Company, its affiliates and sublicensees in the Minerva Territory. The licensor will pay a quarterly royalty percentage to the Company in the high single digits on aggregate net sales for MIN-202 products sold by the licensor outside the Minerva Territory.    In accordance with the development agreement, the Company will pay 40% of MIN-202 development costs

14


 

related to the joint development of any MIN-202 products. However, the Company’s share of aggregate development costs shall not exceed (i) $5.0 million for the period beginning from the effective date of the license and ending following the completi on of certain Phase Ib clinical trials and animal toxicology studies, and (ii) $24.0 million for the period beginning from the effective date of the license and ending following the completion of certain Phase II clinical trials.    The licensor has a right to opt out at the end of certain development milestones, with the first milestone being the completion of a single day Phase I clinical trial in patients with MDD . Upon opt out, the licensor will not have to fund further development of MIN-202 and the Mine rva Territory will be expanded to also include all of North America. The Company would then owe the licensor a reduced royalty in the mid-single digits for all sales in the Minerva Territory. The Company has the right to terminate the license following cer tain development milestones, the first being completion of a certain Phase Ib clinical trial in patients with insomnia and certain toxicology studies in animals. If the Company terminates the license within 45 days of this milestone, the Company must pay a termination fee equal to $3.0 million. If the Company terminates the license at any time following the last development milestone involving a certain Phase IIb clinical trial, the Company will be entitled to a royalty in the mid-single digits from sales o f MIN-202 by the licensor. The licensor may also terminate the agreement for the Company’s material breach or certain insolvency events, including if the Company is unable to fund its portion of the development costs.

The Company accounts for the co-development and license agreement as a joint risk-sharing collaboration in accordance with ASC 808, Collaboration Arrangements . Payments between the Company and the licensor with respect to each party’s share of MIN-202 development costs that have been incurred pursuant to the joint development plan are recorded within research and development expenses or general and administrative expenses, as applicable, in the accompanying consolidated statements of operations due to the joint risk-sharing nature of the activities. The Company has included $3.1 million and $2.5 million in accrued collaborative expenses, as of March 31, 2017 and December 31, 2016, respectively, related to this agreement. The Company made no payments in each of the three months ended March 31, 2017 and 2016, related to development activities under this agreement.

On July 6, 2016, the Company and Janssen agreed that “Decision Point 2” had been reached as defined under the co-development agreement. As neither party has exercised their right to withdraw from the agreement, the Company has paid Janssen $3.5 million and have incurred direct expenses of $0.3 million related to development activities under the current phase of development. The Company expects to pay up to an additional $15.2 million to Janssen as costs are incurred for the completion of certain Phase II clinical trials in accordance with the terms of the co-development agreement. During the three months ended March 31, 2017 and 2016, the Company recorded an expense of $3.2 million and a cost offset of $0.1 million, respectively, for certain development activities in accordance with the terms of the co-development agreement. A number of supportive activities and studies are underway in anticipation of the next phase of clinical trials with MIN-202 in both insomnia disorder and MDD.

 

NOTE 7 — STOCKHOLDERS’ EQUITY

Warrant Exercises

In January, February, June and December 2016 and in March 2017, certain investors in the Company’s March 2015 private placement exercised their warrants at an exercise price of $5.772 per share and received an aggregate of 5,673,758 shares of the Company’s common stock. The Company received gross proceeds of approximately $32.7 million from the exercise of these warrants. As of March 31, 2017, there are no remaining warrants outstanding under the Company’s March 2015 private placement.

Public Offering of Common Stock

On June 17, 2016, the Company closed a public offering of common stock, in which the Company issued and sold 6,052,631 shares of common stock at a public offering price of $9.50, for aggregate gross proceeds to the Company of $57.5 million. All of the shares issued and sold in this public offering were registered under the Securities Act pursuant to a registration statement on Form S-3 (File No. 333-205764) and a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission . The Company incurred $3.8 million in underwriting discounts and commissions and transaction costs, which have been included as a component of additional paid-in capital, resulting in net proceeds of $53.7 million.  

Private Placement of Common Stock

On March 17, 2016, the Company entered into a common stock purchase agreement with a member of the Board of Directors, pursuant to which the Company, in a private placement, sold to the director an aggregate of 181,488 shares of the Company’s common stock, at a price per share of $5.51, for gross proceeds of approximately $1.0 million.

15


 

Term Loan Warrants

In connection with the Loan Agreement, the Company issued the Lenders warrants to purchase shares of its common stock upon its draw of each tranche of the Term Loans. The aggregate number of shares of common stock issuable upon exercise of the warrants is equal to 2.25% of the amount drawn of such tranche, divided by the average closing price per share of the Company’s common stock reported on the NASDAQ Global Market for the 10 consecutive trading days prior to the applicable draw.  Upon the draw of the Term A Loans, the Company issued the Lenders warrants to purchase 40,790 shares of common stock at a per share exercise price of $5.516. The warrants are 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 A Loans and also as a component of additional paid-in capital and will be amortized to interest expense over the term of the loan. All such warrants were outstanding as of March 31, 2017.  

 

NOTE 8 — STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

In December 2013, the Company adopted the 2013 Equity Incentive Plan (the “Plan”), which provides for the issuance of options, stock appreciation rights, stock awards and stock units. On January 1, 2017, in accordance with the terms of the Plan , the total shares authorized for issuance under the plan increased by 750,000 to 5,781,333.  This increase represents the lessor of 750,000 shares or 4% of the total shares outstanding calculated as of the end of the most recent fiscal year. The exercise price per share shall not be less than the fair value of the Company’s underlying common stock on the grant date and no option may have a term in excess of ten years. Stock option activity under the Plan is as follows:

 

 

 

Shares Issuable

Pursuant to

Stock Options

 

 

Weighted-

Average

Exercise Price

 

Outstanding January 1, 2017

 

 

3,974,143

 

 

$

6.61

 

 

 

 

 

 

 

 

 

 

Granted

 

 

145,000

 

 

$

11.75

 

Exercised

 

 

(59,797

)

 

$

4.71

 

Forfeited

 

 

-

 

 

$

-

 

Outstanding March 31, 2017

 

 

4,059,346

 

 

$

6.82

 

Exercisable March 31, 2017

 

 

2,104,342

 

 

$

5.95

 

Available for future grant

 

 

1,426,535

 

 

 

 

 

 

The weighted average grant-date fair value of stock options outstanding on March 31, 2017 was $5.19 per share. Total unrecognized compensation costs related to non-vested stock options at March 31, 2017 was approximately $10.2 million and is expected to be recognized within future operating results over a weighted-average period of 2.9 years. At March 31, 2017, the weighted average contractual term of the options outstanding is approximately 8.1 years. The intrinsic value of outstanding stock options at March 31, 2017 was $8.5 million.

 

The Company uses the Black Scholes model to estimate the fair value of stock options granted to employees.  There were no stock options granted to employees during the three months ended March 31, 2017 and 2016.

 

Stock-Based Awards Granted to Non-employees- The Company from time to time grants options to purchase common stock to non-employees for services rendered and records expense ratably over the vesting period of each award. The Company estimates the fair value of the stock options using the Black-Scholes valuation model at each reporting date. The Company granted 145,000 stock options to non-employees during the three months ended March 31, 2017. The Company recorded stock-based compensation expense for stock options granted to non-employees of $0.1 million during the three months ended March 31, 2017. There were no stock option grants made to non-employees made during the three months ended March 31, 2016.  

16


 

For stock options granted to non-employees, the Company utilized the following assumptions:

 

 

 

March 31, 2017

 

Expected term (years)

 

9.4-9.8

 

Risk free interest rate

 

2.37-2.39%

 

Volatility

 

110-112%

 

Dividend yield

 

 

0%

 

Weighted average reporting date fair value per share of

   common stock

 

$

7.36

 

 

The expected term of the employee-related options was estimated using the “simplified” method as defined by the Securities and Exchange Commission’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 whose term 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.

RSU activity under the Plan for the three months ended March 31, 2017 is as follows:

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant Date

 

 

 

RSUs

 

 

Fair Value

 

Unvested January 1, 2017

 

 

219,600

 

 

$

13.45

 

Granted

 

 

 

 

$

 

Vested

 

 

 

 

$

 

Forfeited

 

 

 

 

$

 

Unvested March 31, 2017

 

 

219,600

 

 

$

13.45

 

RSUs awarded to employees generally vest one-fourth per year over four years from the anniversary of the date of grant, provided the employee remains continuously employed with the Company. Shares of the Company’s stock are delivered to the employee upon vesting, subject to payment of applicable withholding taxes. The fair value of RSUs is equal to the closing price of the Company’s common stock on the date of grant. Total unrecognized compensation costs related to non-vested RSUs at March 31, 2017 was approximately $2.7 million and is expected to be recognized within future operating results over a period of 3.7 years.

The Company recognized stock-based compensation expense for the three months ended March 31, 2017 and 2016 of $1.3 million and $0.8 million, respectively.  

 

NOTE 9 — COMMITMENTS AND CONTINGENCIES

In September 2014, the Company entered into a lease agreement for 4,043 square feet of office space in Waltham, MA. The term of the lease is approximately two years, and the Company is required to make monthly rental payments commencing December 2014. Estimated annual rent payable under this operating lease is approximately $0.1 million per year in each of the two years.

In April 2016, the Company entered into an agreement to extend the term of the lease through March 31, 2018. Estimated annual rent payable under this agreement is approximately $0.1 million per year.

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. 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.

 

 

17


 

NOTE 10 — RELATED PARTY TRANSACTIONS

In January 2016, the Company entered into a services agreement with V-Watch SA (“V-Watch”), for approximately $105,000 for the use of V-Watch’s SomnoArt device for monitoring sleep in the MIN-101 Phase IIb and MIN-117 Phase IIa trials. The Company’s Chief Executive Officer is the chairman of the board of directors of V-Watch. Funds affiliated with Index Ventures, a stockholder of the Company, hold greater than 10% of the outstanding capital stock of V-Watch. During the three months ended March 31, 2017 and 2016, the Company recorded an expense of zero and $0.1 million, respectively, related to this agreement.

Also refer to Note 6 – Co-Development and License agreement and Note 7 – Stockholder’s Equity for additional related party transactions.

 

18


 

I tem 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, 2016 as filed with the Securities and Exchange Commission on March 13, 2017.

Historical Overview

We are 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, or CNS, diseases. Leveraging our scientific insights and clinical experience, we have acquired or in-licensed four development-stage proprietary compounds that we believe have innovative mechanisms of action and therapeutic profiles that potentially address the unmet needs of patients with these diseases.

Our product portfolio and potential indications include: MIN-101 for the treatment of schizophrenia; MIN-202 (also known as JNJ-42847922), which we are co-developing with Janssen Pharmaceutica NV, or Janssen, for the treatment of insomnia disorder and major depressive disorder, or MDD; MIN-117 for the treatment of MDD; and MIN-301 for the treatment of Parkinson’s disease. We believe our product candidates have significant potential to improve the lives of a large number of affected patients and their families who are currently not well-served by available therapies.

In November 2013, Cyrenaic Pharmaceuticals, Inc., or Cyrenaic, and Sonkei Pharmaceuticals, Inc., or Sonkei, merged, and the combined company was renamed Minerva Neurosciences, Inc. Cyrenaic had been incorporated in 2007 and had exclusively licensed MIN-101 from Mitsubishi Tanabe Pharma Corporation, or MTPC. Sonkei had been incorporated in 2008 and had exclusively licensed MIN-117 from MTPC. We executed the merger as we saw an opportunity to better serve an underserved patient population through combining a portfolio of promising product candidates targeting CNS diseases. As a result of the merger, we have the rights to develop and commercialize MIN-101 and MIN-117 globally, excluding most of Asia.

We further expanded our product candidate portfolio in February 2014 by acquiring the shares of Mind-NRG SA, or Mind-NRG, which had exclusive rights to develop and commercialize MIN-301. In addition, in February 2014 we entered into a co-development and license agreement with Janssen, one of the Janssen Pharmaceutical Companies of Johnson & Johnson. Pursuant to this agreement we are co-developing MIN-202 and have the right to commercialize this compound in the European Union, Switzerland, Liechtenstein, Iceland and Norway, or the Minerva Territory, subject to royalty payments to Janssen, with Janssen having commercialization rights outside of the Minerva Territory, subject to royalty payments to us.  Our relationships with Janssen and MTPC help inform our clinical development and regulatory strategies.

We have not received regulatory approvals to commercialize any of our product candidates, and we have not generated any revenue from the sales or license of our product candidates. We have incurred significant operating losses since inception. We expect to incur net losses and negative cash flow from operating activities for the foreseeable future in connection with the clinical development and the potential regulatory approval, infrastructure development and commercialization of our product candidates.

Clinical Update

MIN-101

End-of-Phase II Meeting

We recently held an “end-of-Phase II” meeting with the U.S. Food and Drug Administration (FDA) to review our clinical, pre-clinical and chemistry, manufacturing and control data and to obtain feedback and guidance related to the Phase III and Phase IV development of MIN-101 to treat negative symptoms in patients with a diagnosis of schizophrenia, including pivotal trial design.  We expect to initiate Phase III development of this compound in both the U.S. and Europe in the second half of 2017.

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Phase IIb Trial

In May 2016, we announced top line results from a prospective Phase IIb, 12-week, randomized, double-blind, placebo-controlled parallel clinical trial evaluating the efficacy, safety and tolerability of MIN-101 as monotherapy in patients with negative symptoms of schizophrenia using the pentagonal structure model, or PSM, of the Positive and Negative Syndrome Scale, or PANSS.  These negative symptoms, for which no approved treatment is currently available, affect the majority of schizophrenic patients and can persist over their lifetimes. A total of 244 patients were randomized in equal groups to receive daily doses of MIN-101 32 mg, MIN-101 64 mg or placebo at 32 clinical sites in Russia and five European countries. To participate in the trial, patients were required to have stable positive and negative symptoms for three months prior to entry, a PANSS negative sub-score greater than or equal to 20, and scores < 4 on the following PANSS items: excitement, hyperactivity, hostility, suspiciousness, uncooperativeness and poor impulse control.  All three cohorts were balanced with respect to demographic and baseline disease characteristics.

The study achieved its primary endpoint, as we observed a statistically significant benefit of MIN-101 over placebo in improving negative symptoms as measured by the PSM of PANSS. The effect was observed for both doses tested: 32 milligrams (mg): p ≤ 0.024 with an effect size of 0.45, and 64 mg: p ≤ 0.004 with effect size of 0.57.

We also observed a statistically significant benefit of MIN-101 over placebo on the PANSS three factors negative symptoms subscale for both doses tested: 32 mg: p ≤ 0.006, with an effect size of 0.54, and 64 mg: p ≤ 0.001 with an effect size of 0.70. 

Furthermore, we observed the statistically significant benefit of MIN-101 over placebo on the PANSS total score (not significant for the 32 mg dose; p ≤ 0.003 for the 64 mg dose), with effect sizes of 0.34 and 0.57, respectively.

The consistency and robustness of the effect was also supported by the observed statistically significant benefit of MIN-101 over placebo in multiple secondary endpoints as measured by the following: the PANSS general psychopathology subscale, Brief Negative Symptoms Scale total score, Clinical Global Impression of Severity, Clinical Global Impression of Improvement, Personal and Social Performance total score and Brief Assessment of Cognition in Schizophrenia (BACS) total score. Positive symptoms were observed to remain stable, and the absence of extra-pyramidal symptoms (EPS) throughout the three month trial is consistent with the hypothesis that MIN-101 has a direct and specific effect on negative symptoms rather than an indirect effect mediated by improvements of positive symptoms.

Discontinuation criteria based on QTcF prolongation were incorporated in the protocol. Two patients out of 162 who received MIN-101 were discontinued based upon these criteria; both of these patients received the higher dose (64 mg).

Patients who completed the 12-week double-blind core phase of this study were provided the opportunity to enter into a 24-week, open-label extension phase.  The extension phase was completed during the third quarter of 2016, and we announced data from the extension phase in October 2016. Data generated during the extension period were intended to provide longer term supportive evidence of efficacy and to complement the statistically significant results obtained during the core phase.

During the extension phase, all patients received either 32 mg or 64 mg of MIN-101.  Patients who received placebo in the core phase were randomized to one of these two doses at the beginning of the extension phase.  One hundred forty-two patients from the treatment and placebo groups in the core phase entered the extension phase, with 88 patients completing the extension. Seventy patients received 32 mg and 72 patients received 64 mg during the extension.  

Negative symptoms, assessed based on the PANSS PSM, were observed to continue to improve during the extension phase, as shown by a reduction from the study start for the 32 and 64 mg-treated groups of 5.5 points and 4.9 points, respectively, and by a reduction of 5.4 points and 5.3 points, respectively, in the PANSS three factors negative symptoms subscale.

Positive symptoms were observed to remain stable throughout the study, as measured by PANSS positive symptom scores. This finding is consistent with the hypothesis that MIN-101 has a direct and specific effect on negative symptoms.    General psychopathology was observed to improve during the extension phase for the 32 and 64 mg groups, as shown by reductions in the PANSS general psychopathology subscale score.  

MIN-101 was generally reported to be well tolerated through the entire 36-week period. Based on previous non-clinical and clinical experience, QTcF, a measure of cardiac function, was closely monitored throughout the study, and discontinuation criteria based on QTcF prolongation were incorporated in the protocol. Two patients out of 162 who received MIN-101 in the core phase were discontinued based upon these criteria; both of these patients received the higher dose (64 mg). In the extension phase no additional patients were discontinued.  In the extension phase, we also observed that MIN-101 at the doses tested did not have an effect on EPS, prolactin or weight gain.

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Additional data analyses from the Phase IIb trial were presented at the 55 th Annual Meeting of the American College of Neuropsychopharmacology, or ACNP in December 2016. These analyses concluded that MIN-101 has a direct effect on negative symptoms (rather than an indirect or pseudo effect secondary to improvements in other symptoms) as supported by the stability observed in positive symptoms, the absence of EPS and the pe rsistence of this direct effect even after controlling for improvements in depressive symptoms.  Researchers noted that since phenomena similar to negative symptoms are manifest in many psychiatric disorders and in brain degenerative disorders such as Alzh eimer’s disease and Parkinson’s disease, future trials with MIN-101 could be designed to explore its potential benefit in these patient populations.

In post-hoc analysis presented at ACNP, improvement in negative symptoms was shown to be greatest among younger patients, especially in the cohort of patients under 33 years of age.  This finding supports the potential therapeutic intervention with MIN-101 in younger patients with schizophrenia who are beginning to manifest these symptoms.  It is also consistent with research showing that chronic pharmacotherapeutic intervention in schizophrenia, which includes atypical antipsychotics to treat acute positive symptoms, becomes less effective as patients age and suffer long-term consequences of the disease and side effects of current treatment options.

Additional results presented at ACNP suggest a benefit of treatment with MIN-101 32 mg in improving cognitive function in schizophrenia patients with predominant negative symptoms.  Cognitive function was evaluated using the BACS scale, and data analyses demonstrated statistically significant differences between patients treated with MIN-101 at the 32 mg dose and those who received placebo.  Cognitive impairment, a core feature of schizophrenia, affects up to 75% of patients and is believed to be a good predictor of functional outcome.

Phase IIa Trial

In 2009 we completed a double-blind, randomized, placebo-controlled Phase IIa trial of MIN-101 as monotherapy in subjects suffering from schizophrenia. Enrolled subjects had previously suffered from an acute episode requiring hospitalization.  This was a double-blind, placebo controlled study with a three month treatment period in which 96 subjects were randomized and 30 completed the study protocol. Patients suffered from positive, negative and cognitive symptoms and had ceased to respond well to previously prescribed medication. Subjects received either placebo or MIN-101, including doses and at a dosing schedule that may differ from the final formulated dose.

The primary endpoint of the study was the efficacy of MIN-101 versus placebo, as measured by PANSS total and sub-scores after one month of treatment. The PANSS is used to measure psychopathology in patients suffering from schizophrenia and can be split into either three factors (positive, negative and general psychopathology) or in five factors (positive, negative, activation, dysphoric mood and autistic thoughts).  Secondary and exploratory endpoints included the efficacy of MIN-101 versus placebo through the PANSS total and sub scores after three months of treatment, as well as cognition, mood, anxiety and sleep using various psychological scales at various treatment time points.

In the Phase IIa trial, subjects treated with MIN-101 showed ongoing improvements in negative symptoms, as compared to baseline, throughout the duration of the trial. After one month, improvements on the PANSS negative symptoms scale were observed. Because this Phase IIa trial was not powered to show results with statistical significance, the study’s primary endpoint was not met. After three months of treatment, the MIN-101 group showed improvements in negative symptoms as compared to placebo.

Recent additional analysis of results from this Phase IIa trial presented at ACNP showed that treatment with MIN-101 was associated with significantly improved sleep induction and normalized slow wave sleep ultradian distribution during the night, which are two key sleep parameters that are disturbed in schizophrenia.  Such disturbances of sleep architecture and continuity may be associated with memory consolidation, which is impaired in schizophrenia.  These effects on sleep parameters may help to improve the overall symptomatology observed in patients suffering from schizophrenia and treated with MIN-101.

Subjects participating in this clinical trial receiving MIN-101 or placebo experienced adverse events, including, but not limited to gastrointestinal, nervous system, psychiatric, and cardiac events, with two subjects with increased heart rate and one subject with decreased heart rate that were deemed to be possibly related to MIN-101 by investigators. Generally, with the exception of cardiac events, which occurred in the MIN-101 subjects alone, similar adverse events were seen in the placebo group tested in this study, although at different rates. The safety results of the Phase IIa study were consistent with Phase I results observed in healthy volunteers.

Following the Phase IIb trial, we are conducting a number of supportive studies with MIN-101 that include formulation and metabolism studies designed to reduce further the potential for QTcF prolongation and to explore dose ranges for patients who metabolize this compound differently.  

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MIN-117

Phase IIa Trial

In May 2016, we announced top line results from a Phase IIa clinical trial in MDD with MIN-117. Data from this trial were subsequently presented at the ACNP Annual Meeting in December 2016.  This study was a four-arm, parallel-group, randomized double-blind, placebo- and positive-control trial which tested two daily administered doses of MIN-117: 0.5 mg and 2.5 mg. The study included 84 patients (21 per arm) with moderate to severe MDD in four European countries. The goals of the trial were to test efficacy, safety and tolerability of MIN-117 over six weeks of treatment. The antidepressant paroxetine was used as an active control and confirmed assay sensitivity. Change on the Montgomery-Asberg Depression Rating Scale, or MADRS, was used as the main outcome measurement. As established prospectively in the statistical analysis plan, this trial was designed for signal detection and effect size estimation.  As such, the study was not powered to demonstrate statistically significant differences between MIN-117 and placebo.

We observed the dose-dependent benefit of MIN-117 over placebo as measured by change in the MADRS.  We observed that MIN-117 at the 0.5 mg daily dose had an effect size, as compared to the placebo group, of 0.24 while the 2.5 mg daily dose had an effect size of 0.34.  This magnitude of effect size is similar to those observed with currently marketed antidepressants.  Improvement in MADRS with MIN-117 against placebo was observed at two weeks. Furthermore, data also showed that 24 % of the patients treated with 2.5 mg of MIN-117 achieved remission as prospectively defined.

Both doses of MIN-117 were reported to be well tolerated, and the incidence and types of side effects did not differ significantly between the MIN-117 group and the placebo group.  No unexpected adverse events were reported. Treatment with MIN-117 was not associated with cognitive impairment, sexual dysfunction, suicidal ideation or weight gain.

Pharmacodynamic measurements based on sleep recordings showed that MIN-117 preserved sleep continuity and architecture and therefore is not expected to have detrimental effects on rapid eye movement sleep distribution and duration.

In September 2016, we announced that the FDA has accepted our IND for MIN-117, allowing us to begin clinical trials with this compound in the United States, building upon the results from the Phase IIa trial in Europe.  Planning is underway for these trials, which are expected to begin in late 2017.

MIN-202

Phase IIa Trial

In January 2016, we announced top line results from a Phase IIa clinical trial of MIN-202 for the treatment of insomnia disorder. The trial was a randomized, two way, cross-over, placebo-controlled double-blind study to evaluate the effect of MIN-202 on sleep and daytime functioning in 28 patients with insomnia disorder without psychiatric co-morbidity. Patients were given 40 mg of MIN-202 or placebo in a cross-over design for treatment periods of five days, separated by a washout period. The trial was conducted at clinical sites in the United States and Europe.  Patients treated with MIN-202 in this trial were observed to have statistically significant improvements in key sleep parameters, compared to patients treated with placebo.  These parameters include sleep efficiency, or SE, as measured by objective polysomnography, the primary endpoint of the trial, for which a positive efficacy signal was detected for 40 milligrams MIN-202 versus placebo (p<0.001).  

Additional significant positive efficacy signals were observed for key secondary parameters in this trial, including latency to persistent sleep, or LPS, wake after sleep onset, or WASO, and total sleep time, or TST.  Compared to placebo, MIN-202 was observed to significantly improve polysomnography parameters (p<0.001) on Days 1 and 5. On Day 5, LPS and WASO were observed to be reduced by 23.2 and 11 minutes, respectively, and TST and SE increased by 39 minutes and 8.12 percent, respectively. Objective and subjective evaluations were significantly correlated.  Subjectively estimated TST, LPS, and WASO were also observed to be improved versus placebo by 43.1, -38.8, and -14.8 minutes, respectively. No serious adverse events were observed in this trial, and preliminary data indicate that MIN-202 was well tolerated by patients. The most common treatment-emergent adverse events associated with exposure to MIN-202 during the double-blind phase of the study were somnolence and abnormal dreams.

Phase Ib Trial

In March 2016, we announced top line results from the Phase Ib clinical trial in MDD with MIN-202 conducted in Europe.  Data from this trial were subsequently presented at the ACNP Annual Meeting in December 2016.  The Phase Ib trial was a randomized, double-blind, parallel group study including 20 mg of MIN-202 administered in the evening, a positive control, 25 mg of diphenhydramine, and placebo, to evaluate treatment with MIN-202 in 48 subjects ages 18 to 65 years with a diagnosis of MDD who could be treated with marketed antidepressants.  MIN-202 was observed to be well tolerated by study participants over a one-month treatment duration,

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with no serious adverse events. Consistently greater improvements in depressive symptomatology were observed in patients randomized to receive MIN-202 compared to those randomized to receive placebo or diphenhydramine, as measured by clinician administered rating scales, including the Hamilton Depression Rating Scale. These findings support the potential of MIN-202 to have a direct effect on mood independent from its effect on sleep .  Core symptoms of depression (as measured by the HAM-D 6) were observed to be significantly improved in the MIN-202 arm when compared with placebo.

Phase I Trial in Japan 

In February 2016, we announced top line data from a Phase I clinical trial with MIN-202 conducted in Japan. It was observed that single dose morning administration of MIN-202 was well tolerated at all three dose levels tested, 5 mg, 20 mg and 40 mg.  The observed plasma pharmacokinetic features were comparable to those observed in previous trials carried out in healthy non-Asian study participants.  No clinically relevant safety concerns were observed based on the assessment of multiple safety endpoints.  Somnolence was the most frequently reported adverse event at the two higher doses, an expected finding as this compound is being developed as a treatment for patients suffering from insomnia disorder and as adjunctive treatment to concomitant antidepressant drug therapy in MDD.  This trial was a single center, double blind, placebo-controlled randomized single ascending dose study to investigate the safety, tolerability and pharmacokinetics of MIN-202 in 24 healthy Japanese adult male study participants.  

A number of supportive activities and clinical pharmacology studies are being conducted in anticipation of the next phase of clinical development with MIN-202 in both insomnia and MDD.  

MIN-301

In January 2015, we announced results from a non-human primate study showing that treatment with an analog of MIN-301 resulted in improvements in a range of symptoms associated with a Parkinson’s disease model in primates. The results confirmed the beneficial effects of MIN-301 in non-primate preclinical models.  We believe these data provide support for advancing MIN-301 into clinical trials for the treatment of Parkinson’s disease in humans. Building upon these data, we are continuing to conduct preclinical development with MIN-301 as a treatment for Parkinson’s disease.  Our next steps for the development of MIN-301 include continuing to conduct preclinical studies in preparation for an Investigational New Drug, or IND, or Investigational Medicinal Product Dossier, or IMPD filing, with a Phase I study expected to commence thereafter.

Financial Overview

Revenue. None of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates.

Research and Development Expense. Research and development expenses consists of costs incurred in connection with the development of our product candidates, including: fees paid to consultants and clinical research organizations, or CROs, including in connection with our non-clinical and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis; licensing fees; costs related to acquiring clinical trial materials; costs related to compliance with regulatory requirements; and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions. We expense research and development costs as they are incurred.

In the future, we expect research and development expenses to continue to be our largest category of operating expenses and to increase as we continue our planned pre-clinical and clinical trials for our product candidates and as we hire additional research and development staff.

Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment as to each product candidate’s commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future in order to complete the development and commercialization of our product candidates.

General and Administrative Expense. General and administrative expenses consist principally of costs for functions in executive, finance, legal, auditing and taxes. Our general and administrative expenses include salaries, bonuses, facility and information system costs and professional fees for auditing, accounting, consulting and legal services. General and administrative costs also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff.

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We expect to continue to incur general and administr ative expenses related to operating as a publicly-traded company, including increased audit and legal fees, costs of compliance with securities, corporate governance and other regulations, investor relations expenses and higher insurance premiums. In addit ion, we expect to incur additional costs as we hire personnel and enhance our infrastructure to support the anticipated growth of our business.

Foreign Exchange (Losses) Gains. Foreign exchange (losses) gains are comprised primarily of losses and gains of foreign currency transactions related to clinical trial expenses denominated in Euros. Since our current clinical trials are conducted in Europe, we incur certain expenses in Euros and record these expenses 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 loss or gain. We expect to continue to incur future expenses denominated in Euros as certain of our planned clinical trials are expected to be conducted in Europe.

Investment Income. Investment income consists of income earned on our cash equivalents and marketable securities.

Interest Expense. Interest expense consists of interest incurred under our current outstanding loan with Oxford Finance LLC, or Oxford, and Silicon Valley Bank, or SVB.

Results of Operations

Comparison of Three Months Ended March 31, 2017 versus March 31, 2016

Research and Development Expenses

Total research and development expenses were $7.6 million for the three months ended March 31, 2017 compared to $5.4 million for the same period in 2016, an increase in total expense of $2.2 million.  Research and development expense in the three months ended March 31, 2017 and 2016 included non-cash stock-based compensation expenses of $0.5 million and $0.2 million, respectively. This increase in research and development expenses primarily reflects higher development expenses under the MIN-202 program for Phase II clinical trial preparation, and an increase in non-cash stock-based compensation expenses.  These amounts were partially offset by lower costs due to the completion of our Phase IIb clinical trial of MIN-101 and the completion of our Phase IIa clinical trial of MIN-117.

General and Administrative Expenses

Total general and administrative expenses were $2.9 million for the three months ended March 31, 2017 compared to $2.4 million for the same period in 2016, an increase of approximately $0.5 million. General and administrative expense in the three months ended March 31, 2017 and 2016 included non-cash stock-based compensation expenses of $0.8 million and $0.6 million, respectively. This increase in general and administrative expenses was primarily due to an increase in legal and professional fees, an increase in non-cash stock-based compensation expenses, and increased personnel costs during the three months ended March 31, 2017.  

Foreign Exchange (Losses) Gains

Foreign exchange loss was $17 thousand for the three months ended March 31, 2017 compared to a loss of $10 thousand for the same period in 2016, an increased loss of $7 thousand. The loss was primarily due to clinical activities denominated in Euros.

Investment Income

Investment income was $59 thousand for the three months ended March 31, 2017 compared to $32 thousand for the same period in 2016, an increase of $27 thousand. The increase was due to investment income on cash equivalents and marketable securities.

Interest Expense

Interest expense was $0.2 million for the three months ended March 31, 2017 compared to $0.3 million for the same period in 2016, a decrease of $0.1 million. The decrease was primarily due to a lower outstanding loan balance.

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Liquidity and Capital Resources

Sources of Liquidity

We have incurred losses and cumulative negative cash flows from operations since our inception in April 2007 and, as of March 31, 2017, we had an accumulated deficit of approximately $143.5 million. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our product candidates and to support our operations as a public company. At March 31, 2017, we had approximately $85.4 million in cash, cash equivalents and marketable securities. We believe that our existing cash, cash equivalents and marketable securities will be sufficient to meet our cash commitments for at least 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 we have based our estimates are routinely evaluated and may be subject to change. The actual amount of our 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 our research and development programs and the level of financial resources available. We have the ability to adjust our operating plan spending levels based on the timing of future clinical trials which will be predicated upon adequate funding to complete the trials.

Sources of Funds

Exercise of Warrants

In January, February, June and December 2016 and in March 2017, certain investors in our March 2015 private placement exercised their warrants and received an aggregate of 5,673,758 shares of our common stock. We received gross proceeds of approximately $32.7 million from the exercise of these warrants.

Public Offering of Common Stock

On June 17, 2016, we closed a public offering of common stock, in which we issued and sold 6,052,631 shares of common stock at a public offering price of $9.50, for aggregate gross proceeds to us of $57.5 million. All of the shares issued and sold in this public offering were registered under the Securities Act pursuant to a registration statement on Form S-3 (File No. 333-205764) and a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission . We incurred $3.8 million in underwriting discounts and commissions and transaction costs, which have been included as a component of additional paid-in capital, resulting in net proceeds of approximately $53.7 million.  

Private Placement

On March 17, 2016, we entered into a common stock purchase agreement with a member of the Board of Directors, pursuant to which we, in a private placement, sold to the director an aggregate of 181,488 shares of our common stock, at a price per share of $5.51, for gross proceeds of approximately $1 million.

Uses of Funds

To date, we have not generated any revenue. We do not know when, or if, we will generate any revenue from sales of our products or royalty payments from our collaboration with Janssen. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We also expect to continue to incur costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution.

We anticipate that we will need substantial additional funding in connection with our continuing operations and to fund Phase III clinical trials of our lead product candidates.

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third‑party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional

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funds through government or other th ird ‑party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. There can be no assurance that such additional funding, if available, can be obtained on terms acceptable to us. If we are unable to obtain additional fi nancing, future operations would need to be scaled back or discontinued. Based on our current operating plan and our existing cash, cash equivalents and marketable securities will be sufficient to meet our cash commitments for at least the next 12 months a fter the date that the interim condensed financial statements are issued. The timing of future capital requirements depends upon many factors including the size and timing of future clinical trials, the timing and scope of any strategic partnering activity and the progress of other research and development activities.

On July 6, 2016, we and Janssen agreed that “Decision Point 2” had been reached as defined under the co-development agreement. As neither party have exercised their right to withdraw from the agreement, we have paid Janssen $3.5 million and have incurred direct expenses of $0.3 million related to development activities under the current phase of development. We expect to pay up to an additional $15.2 million to Janssen as costs are incurred for the completion of certain Phase II clinical trials in accordance with the terms of the co-development agreement. During the three months ended March 31, 2017 and 2016, we recorded an expense in research and development expenses of $3.2 million and a cost offset of $0.1 million, respectively, for certain development activities in accordance with the terms of the co-development agreement. A number of supportive activities and studies are underway in anticipation of the next phase of clinical trials with MIN-202 in both insomnia disorder and MDD.

Under our $10.0 million Term A Loan, we have made principal repayments of approximately $2.8 million. We expect to make additional principal repayments of approximately $3.7 million in 2017 and $3.5 million in 2018, in accordance with the terms of the agreement.

Cash Flows

The table below summarizes our significant sources and uses of cash for the three months ended March 31, 2017 and 2016:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

 

(dollars in millions)

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

Operating activities

 

$

(6.0

)

 

$

(6.0

)

Investing activities

 

 

(16.5

)

 

 

8.0

 

Financing activities

 

 

8.4

 

 

 

18.5

 

Net (decrease) increase in cash

 

$

(14.1

)

 

$

20.5

 

 

Net Cash Used in Operating Activities

Net cash used in operating activities of approximately $6.0 million during the three months ended March 31, 2017 was primarily due to our net loss of $10.6 million, partially offset by a $1.8 million increase in accounts payable, stock-based compensation expense of $1.3 million, a $0.9 million increase in accrued expenses, an increase in accrued collaborative expenses of $0.5 million and amortization of investments and debt discount of $0.1 million.

Net cash used in operating activities of approximately $6.0 million during the three months ended March 31, 2016 was primarily due to our net loss of $8.0 million and a $0.1 million decrease in accounts payable, partially offset by stock-based compensation expense of $0.8 million, an increase in accrued expenses $0.6 million, an increase of $0.5 million in prepaid expense and amortization of investments and debt discount of $0.2 million.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities of approximately $16.5 million during the three months ended March 31, 2017 was primarily due to the purchase of marketable securities.

Net cash provided by investing activities of approximately $8.0 million during the three months ended March 31, 2016 was due to the maturity and redemption of marketable securities.

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Net Cash Provided by Financing Activities

Net cash provided by financing activities of $8.4 million during the three months ended March 31, 2017 was primarily due to the proceeds from the exercise of common stock warrants of $9.3 million and the proceeds from the exercise of common stock options of $0.3 million, partially offset by the principal repayments under the Term A loans of $1.2 million.

Net cash provided by financing activities of $18.5 million during the three months ended March 31, 2016 was due to proceeds from the exercise of common stock warrants of $17.5 million and proceeds from the sale of common stock in a private placement of $1.0 million.

Contractual Obligations and Commitments

As of March 31, 2017, there were no material changes in our contractual obligations and commitments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC on March 13, 2017.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.

Critical Accounting Policies and Estimates

In our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, our most critical accounting policies and estimates upon which our financial status depends were identified as those relating to stock-based compensation; research and development costs; in-process research and development; business combinations; goodwill; JOBS act; net operating losses and tax credit carryforwards; and impairment of long-lived assets. We reviewed our policies and determined that those policies remain our most critical accounting policies for the three months ended March 31, 2017.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, and are adopted by us as of the specified effective date. Our significant accounting policies are described in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Form 10-Q. Except as described in Note 2, we believe that the impact of other recently issued accounting pronouncements will not have a material impact on consolidated financial position, results of operations, and cash flows, or do not apply to our operations.

 

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from adverse changes in market rates and market prices such as interest rates, foreign currency exchange rates, and changes in the market value of equity instruments. We do not believe we are currently exposed to any material market risk because the interest rate under our Term A loan is fixed, our exposure for fluctuations in foreign exchange rates is not material and we do not hold equity instruments. As of March 31, 2017, we had $16.5 million of marketable securities, which consisted primarily of corporate bonds, with fixed interest rates. These securities have a weighted-average remaining maturity of 4 months. Due to the overall short-term remaining maturities of our marketable securities, our interest rate exposure is not significant. 

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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Our management, with the participation of our Chief Executive Officer (principa l executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2017. Based on the evaluation of our disclosure controls and procedures as of March 31, 20 17, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no other changes in internal control over financial reporting during the Company’s latest fiscal quarter that would have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

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P ART I I

Item 1.   Legal Proceedings

From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this Quarterly Report on Form 10-Q, we do not believe we are party to any claim or litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A.   Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking information based on our current expectations. Because our actual results may differ materially from any forward-looking statements that we make or that are made on our behalf, this section includes a discussion of important factors that could affect our actual future results, including, but not limited to, our capital resources, the progress and timing of our clinical programs, the safety and efficacy of our product candidates, risks associated with regulatory filings, risks associated with determinations made by regulatory agencies, the potential clinical benefits and market potential of our product candidates, commercial market estimates, future development efforts, patent protection, effects of healthcare reform, reliance on third parties, and other risks set forth below. The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, which may be material, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC.

Risks Related to Our Financial Position and Capital Requirements

*We have incurred significant losses since our inception. We expect to continue to incur losses over the next several years and may never achieve or maintain profitability.

We are a clinical development-stage biopharmaceutical company. In November 2013, we merged with Sonkei Pharmaceuticals, Inc., or Sonkei, and, in February 2014, we acquired Mind-NRG, which were also clinical development-stage biopharmaceutical companies. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable. As an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly the biopharmaceutical area. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations.

We are not profitable and have incurred losses in each period since our inception in 2007. For the three months ended March 31, 2017, and 2016, we reported net losses of $10.6 million and $8.0 million, respectively. As of March 31, 2017, we had an accumulated deficit of $143.5 million.  

We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never generate revenue or become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

*We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development and commercialization of our product candidates or develop new product candidates.

Our operations and the historic operations of Sonkei and Mind-NRG have consumed substantial amounts of cash since inception. We expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates into clinical trials.

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As of March 31, 2017, we had cash, cash equivalents and marketable securities of $85.4 million. We believe that our existing cash, cash equivalents and marketable securities will be sufficient to meet our cash commitments for at least the next 12 months af ter the date that our 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 we have based our estimates are routinely evaluat ed and may be subject to change. The actual amount of our 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 our research and development program s and the level of financial resources available.

Our future funding requirements, both short and long-term, will depend on many factors, including:

 

the initiation, progress, timing, costs and results of pre-clinical studies and clinical trials for our product candidates and future product candidates we may develop;

 

the outcome, timing and cost of seeking and obtaining regulatory approvals from the EMA, FDA, and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more studies than those that we currently expect;

 

the cost to establish, maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

 

the effect of competing technological and market developments;

 

market acceptance of any approved product candidates;

 

the costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies; and

 

the cost of establishing sales, marketing and distribution capabilities for our product candidates for which we may receive regulatory approval and that we determine to commercialize ourselves or in collaboration with our partners.

When we need to secure additional financing, such additional fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests, and the per-share value of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. Further, the evolving and volatile global economic climate and global financial market conditions could limit our ability to raise funding and otherwise adversely impact our business or those of our collaborators and providers. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. Any of these events could significantly harm our business, financial condition and prospects.

Changes in estimates regarding fair value of intangible assets may result in an adverse impact on our results of operations.

We test goodwill and in-process research and development for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The test for impairment of in-process research and development requires us to make several estimates about fair value, most of which are based on projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss in our results of operations. An impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of any individual asset may not be recoverable. For example, if we or our counterparties fail to perform our respective obligations under an agreement, or if we lack sufficient funding to develop our product candidates, an impairment may result. In addition, any significant change in market conditions, estimates or judgments used to determine expected future cash flows that indicate a reduction in carrying value may give rise to impairment in the period that the change becomes known.

*We plan to use potential future operating losses and our federal and state net operating loss, or NOL, carryforwards to offset taxable income from revenue generated from operations or corporate collaborations. However, our ability to use existing NOL carryforwards may be limited as a result of issuance of equity securities.

As of December 31, 2016, we had approximately $49.3 million of Federal NOL carryforwards. These Federal NOL carryforwards will begin to expire at various dates beginning in 2027, if not utilized. We plan to use our operating losses to offset any potential future taxable income generated from operations or collaborations. To the extent we generate taxable income, we plan to use our existing NOL carryforwards and future losses to offset income that would otherwise be taxable. If substantial changes in ownership have occurred, there could be annual limitations on the amount of carryforwards that can be realized in future periods. We have not performed a detailed analysis to determine whether an ownership change occurred upon consummation of the merger between us and Sonkei, upon the acquisition of Mind-NRG or our initial public offering or the concurrent private placements. However, as a result of

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these transactions, it is likely that an ownership change has occurred. Therefore, it is likely that some or all of our existing NOL carryforwards would be limited by the provisions of Section 382 of the United States Internal Revenue Code of 1986, as am ended. Further, state NOL carryforwards may be similarly limited. We had approximately $41.4 million of state net operating carryforwards at December 31, 2016. It is also possible that future changes in ownership, including as a result of subsequent sales of securities by us or our stockholders, could similarly limit our ability to utilize NOL carryforwards. It is possible that all of our existing NOL carryforwards have been or will be disallowed. Any such disallowances may result in greater tax liabilities than we would incur in the absence of such a limitation and any increased liabilities could adversely affect our business, results of operations, financial condition and cash flow.

Risks Related to Our Business and Industry

We cannot give any assurance that any of our product candidates will receive regulatory approval in a timely manner or at all, which is necessary before they can be commercialized.

The regulatory approval process is expensive and the time required to obtain approval from the EMA, FDA or other regulatory authorities in other jurisdictions to sell any product is uncertain and may take years.

Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Moreover, the filing of a marketing application, including a New Drug Application, or NDA, or Biologics License Application, or BLA, requires a payment of a significant user fee upon submission. The filing of marketing applications for our product candidates may be delayed due to our lack of financial resources to pay such user fee.

If, following submission, our application is not accepted for substantive review or approval, the EMA, FDA or other comparable foreign regulatory authorities may require that we conduct additional clinical or pre-clinical trials, provide additional data, manufacture additional validation batches or develop additional analytical tests methods before they will reconsider our application. If the EMA, FDA or other comparable foreign regulatory authorities requires additional studies or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, the EMA, FDA or other comparable foreign regulatory authorities may not consider sufficient any additional required trials, data or information that we perform or provide, or we may decide, or be required, to abandon the program.

Moreover, policies, regulations, or the type and amount of pre-clinical and clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. It is possible that none of our existing product candidates or any of our future product candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking such approval.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

The EMA, FDA or other regulatory authorities may disagree with the design or implementation of our clinical trials. We have not yet consulted with the EMA or the FDA on the design and conduct of the clinical trials that have already been conducted or that we intend to conduct. Thus, the EMA, FDA and other comparable foreign authorities may not agree with the design or implementation of these trials. We intend to seek guidance from the EMA in relation to the European Union clinical trial program and the FDA on the design and conduct of clinical trials of our compounds when we initiate a clinical program in the United States in the future.

 

We may be unable to demonstrate to the satisfaction of the EMA, FDA or other regulatory authorities that a product candidate is safe and effective for its proposed indication.

 

The results of clinical trials may not meet the level of statistical significance required by the EMA, FDA or other regulatory authorities for approval.

 

We may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh any safety risks.

 

The EMA, FDA or other regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials.

 

The data collected from clinical trials of our product candidates may not be sufficient to support an NDA or other submission or to obtain regulatory approval in the United States or elsewhere.

 

The EMA, FDA or other regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies.

 

The approval policies or regulations of the EMA, FDA or other regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

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Even if we obta in approval for a particular product, regulatory authorities may approve that product for fewer or more limited indications, including more limited patient populations, than we request, may require that contraindications, warnings, or precautions be includ ed in the product labeling, including a black box warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-market requirements, including risk evaluation and mitigation strategies, or REMS, or may app rove a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product. Any of the foregoing could materially harm the commercial prospects for our product candidates.

Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.

The results of pre-clinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Interpretation of results from early, usually smaller, trials that suggest positive trends in some subjects, require caution. Results from later stages of clinical trials enrolling more subjects may fail to show the desired safety and efficacy results or otherwise fail to be consistent with the results of earlier trials of the same product candidate. This may occur for a variety of reasons, including differences in trial design, trial endpoints (or lack of trial endpoints in exploratory studies), subject population, number of subjects, subject selection criteria, trial duration, drug dosage and formulation or due to the lack of statistical power in the earlier trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in earlier trials.

The results of clinical trials conducted at sites outside the United States may not be accepted by the FDA and the results of clinical trials conducted at sites in the United States may not be accepted by international regulatory authorities.

We plan to conduct our clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data would be subject to certain conditions imposed by the FDA. For example, the clinical trial must be well-designed and conducted and performed by qualified investigators in accordance with ethical safeguards such as institutional review board, or IRB, or ethics committee approval and informed consent. The study population must also adequately represent the applicable United States population, and the data must be applicable to the American population and medical practice in ways that the FDA deems clinically meaningful. In addition, while clinical trials conducted outside of the United States are subject to the applicable local laws, FDA acceptance of the data from such trials will be dependent upon its determination that the trials were conducted consistent with all applicable United States laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States as adequate support of a marketing application, and it is not unusual for the FDA to require some Phase III clinical trial data to be generated in the United States. If the FDA does not accept the data from our international clinical trials, it would likely result in the need for additional trials in the United States, which would be costly and time-consuming and could delay or permanently halt the development of one or more of our product candidates.

If we experience delays in clinical testing, we will be delayed in commercializing our product candidates, our costs may increase and our business may be harmed.

We do not know whether our clinical trials will be completed on schedule, or at all. Our product development costs will increase if we experience delays in clinical testing. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business, results of operations and prospects.

The commencement and completion of clinical development can be delayed or halted for a number of reasons, including:

 

difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial;

 

delays in reaching or failure to reach agreement on acceptable terms with prospective clinical research organizations, or CROs, and trial sites, which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

deviations from the trial protocol by clinical trial sites and investigators, or failing to conduct the trial in accordance with regulatory requirements;

 

failure of our third parties, such as CROs, to satisfy their contractual duties or meet expected deadlines;

 

insufficient or inadequate supply or quantity of product material for use in trials due to delays in the importation and manufacture of clinical supply, including delays in the testing, validation, and delivery of the clinical supply of the investigational drug to the clinical trial sites;

 

delays in identification and auditing of central or other laboratories and the transfer and validation of assays or tests to be used;

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delays in having subjects complete participation in a trial or return for post-treatment follow-up;

 

difficulties obtaining IRB or ethics committee approval to conduct a trial at a prospective site, or complying with conditions imposed by IRBs or ethics committees;

 

challenges recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other programs for the treatment of similar conditions;

 

severe or unexpected drug-related adverse events experienced by subjects in a clinical trial;

 

difficulty retaining subjects who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues, which are common among schizophrenia and MDD subjects who we require for our clinical trials of two of our product candidates, MIN-101 and MIN-117;

 

delays in adding new investigators and clinical sites;

 

withdrawal of clinical trial sites from clinical trials;

 

lack of adequate funding; and

 

clinical holds or termination imposed by the European Union national regulatory authorities, the FDA or IRBs or ethics committees.

Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, clinical trials may be suspended or terminated by us, an IRB or ethics committee overseeing the clinical trial at a trial site (with respect to that site), the European Union national regulatory authorities or the FDA due to a number of factors, including:

 

failure to conduct the clinical trial in accordance with regulatory requirements, the trial protocols and applicable laws;

 

observations during inspection of the clinical trial operations or trial sites by the EMA, FDA or other comparable foreign regulatory authorities that ultimately result in the imposition of a clinical hold;

 

unforeseen safety issues; or

 

lack of adequate funding to continue the clinical trial.

Failure to conduct a clinical trial in accordance with regulatory requirements, the trial protocols and applicable laws may also result in the inability to use the data from such trial to support product approval. Additionally, changes in regulatory requirements and guidance may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to the EMA, FDA, IRBs or ethics committees for reexamination, which may impact the costs, timing and successful completion of a clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of a clinical trial may also ultimately lead to the denial of regulatory approval of the associated product candidate. If we experience delays in completion of, or if we terminate any of our clinical trials, our ability to obtain regulatory approval for our product candidates may be materially harmed, and our commercial prospects and ability to generate product revenues will be diminished.

We have no experience in advancing product candidates beyond Phase II, which makes it difficult to assess our ability to develop and commercialize our product candidates.

We have no experience in progressing clinical trials past Phase II, obtaining regulatory marketing approvals or commercializing product candidates. We merged with Sonkei and acquired Mind-NRG and have limited operating history since the respective merger and acquisition. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in pursuing our business objectives. We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

If we are unable to enroll subjects in clinical trials, we will be unable to complete these trials on a timely basis or at all.

The timely completion of clinical trials largely depends on subject enrollment. Many factors affect subject enrollment, including:

 

the size and nature of the subject population;

 

the number and location of clinical sites we enroll;

 

competition with other companies for clinical sites or subjects;

 

the eligibility and exclusion criteria for the trial;

 

the design of the clinical trial;

 

inability to obtain and maintain subject consents;

 

risk that enrolled subjects will drop out before completion; and

 

clinicians’ and subjects’ perceptions as to the potential advantages or disadvantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

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We rely on CROs and clini cal trial sites to ensure the proper and timely conduct of our clinical trials in Europe and, we expect, eventually in the United States and, while we have agreements governing their committed activities, we have limited influence over their actual perform ance. We may also experience difficulties enrolling subjects for our clinical trials relating to MIN-101 and MIN-117 due to the mental health of the subjects that we will need to enroll, related diagnoses and drop-out rates.

Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization, and also increase costs.

Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive pre-clinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication, and failures can occur at any stage of testing. Clinical trials often fail to demonstrate safety and statistically significant efficacy of the product candidate studied for the target indication in later stages of clinical development. For example, although we believe our Phase IIb trial with MIN-101 met its primary endpoint as we observed the statistically significant benefit of MIN-101 over placebo in improving negative symptoms in patients with schizophrenia, we must conduct pivotal, Phase III trials with MIN-101 that may fail to demonstrate safety and efficacy. Our Phase IIa trial with MIN-117, while we observed a reduction in depressive symptoms, was designed to detect a signal of efficacy and not to demonstrate statistically significant differences between MIN-117 and placebo. Further clinical trials with MIN-117 will need to be statistically powered to demonstrate such differences. Regulatory authorities may find that our studies do not support, in combination with other studies, approval of our product candidates for the target indication. In addition, our product candidates may be associated with undesirable side effects or have characteristics that are unexpected, which may result in abandoning their development or regulatory authorities restricting or denying marketing approval. For instance, prior clinical studies indicated that MIN-101 and MIN-117 may cause adverse events, including, but not limited to, dizziness, vital sign changes, central nervous system events, cardiac events, including prolongation of the QT/QTc interval, and gastrointestinal events. Most product candidates that commence clinical trials are never approved by the applicable regulatory authorities.

In the case of our product candidates, MIN-101 and MIN-117, we are seeking to develop treatments for schizophrenia and MDD, which adds a layer of complexity to our clinical trials and may delay regulatory approval. We do not fully understand the cause and pathophysiology of schizophrenia and MDD, and our results will rely on subjective subject feedback, which is inherently difficult to evaluate, can be influenced by factors outside of our control and can vary widely from day to day for a particular subject, and from subject to subject and site to site within a clinical study. The placebo effect may also have a more significant impact on our clinical trials.

If our product candidates are not shown to be both safe and effective in clinical trials, we will not be able to obtain regulatory approval or commercialize our product candidates.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and management resources, we focus on a limited number of research programs and product candidates. For instance, at the present time we are prioritizing the clinical trials and development of the most advanced of our product candidates, MIN-101. As a result, we may forego or delay pursuit of opportunities with other product candidates, including MIN-117, MIN-202 and MIN-301, or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.

Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain marketing approval to commercialize a product candidate or the approval may be for a more narrow indication than we expect.

We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our product candidates demonstrate safety and efficacy in clinical trials, the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain marketing approval from the relevant regulatory agencies. Additional delays may result if the EMA, FDA, an FDA Advisory Committee, or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and the review process.

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Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties, including ongoing regulatory obligations and continued regulatory review. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to administrative sanctions or penalties if we fail to comply with regulatory requirements or experience unanticipated prob lems with our products.

Even if we obtain regulatory approval for a product candidate, product candidates may be approved for fewer or more limited indications, including more limited subject populations, than we request, and regulatory authorities may require that contraindications, warnings, or precautions be included in the product labeling, including a black box warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-market requirements, such as REMS, may require post-marketing surveillance, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. For instance, in 2007, the FDA requested that makers of all antidepressant medications update existing black box warnings about increased risk of suicidal thought and behavior in young adults, ages 18 to 24, during initial treatment. If approved for marketing, our drugs may be required to carry warnings similar to this and other class-wide warnings.

Any approved products would further be subject to ongoing requirements imposed by the EMA, FDA, and other comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, marketing, recordkeeping and reporting of safety and other post-market information. If there are any modifications to the drug, including changes in indications, labeling, manufacturing processes or facilities, or if new safety issues arise, a new or supplemental NDA, post-implementation notification or other reporting may be required or requested, which may require additional data or additional pre-clinical studies and clinical trials.

The EMA, FDA and other comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the EMA, FDA or other comparable foreign regulatory authorities become aware of new adverse safety information after approval of any of our product candidates, a number of potentially significant negative consequences could result, including:

 

we may suspend marketing of, or withdraw or recall, such product;

 

regulatory authorities may withdraw approvals of such product;

 

regulatory authorities may require additional warnings or otherwise restrict the product’s indicated use, label, or marketing;

 

the EMA, FDA or other comparable foreign regulatory bodies may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product;

 

the FDA may require the establishment or modification of a REMS or the EMA or a comparable foreign regulatory authority may require the establishment or modification of a similar strategy that may, for instance, require us to issue a medication guide outlining the risks of such side effects for distribution to subjects or restrict distribution of our products and impose burdensome implementation requirements on us;

 

regulatory authorities may require that we conduct post-marketing studies or surveillance;

 

we could be sued and held liable for harm caused to subjects or patients; and

 

our reputation may suffer.

In addition, manufacturers of drug products and their facilities, including contracted facilities, are subject to continual review and periodic inspections by national regulatory authorities in the European Union, the FDA and other regulatory authorities for compliance with current Good Manufacturing Practices, or cGMP, regulations and standards. The European Union cGMP guidelines are as set forth in Commission Directive 2003/94/EC of October 8, 2003. If we or a regulatory agency or authority discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, the product’s stability (changes in levels of impurities or dissolution profile) or problems with the facility where the product is manufactured, we may be subject to reporting obligations, additional testing and additional sampling, and a regulatory agency or authority may impose restrictions on that product, the manufacturing facility, our suppliers, or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates, the manufacturing facilities for our product candidates, our CROs, or other persons or entities working on our behalf fail to comply with applicable regulatory requirements either before or after marketing approval, a regulatory agency may, depending on the stage of product development and approval:

 

issue adverse inspectional findings;

 

issue Warning Letters or Untitled Letters;

 

mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;

 

amend and update labels or package inserts;

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require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due da tes for specific actions and penalties for noncompliance;

 

seek an injunction or impose civil, criminal and/or administrative penalties, damages or monetary fines or imprisonment;

 

suspend or withdraw regulatory approval;

 

suspend or terminate any ongoing clinical studies;

 

bar us from submitting or assisting in the submission of new regulatory applications;

 

refuse to approve pending applications or supplements to applications filed by us;

 

refuse to allow us to enter into government contracts;

 

suspend or impose restrictions on operations, including restrictions on marketing or manufacturing of the product, or the imposition of costly new manufacturing requirements or use of alternative suppliers; or

 

seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall.

The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenue.

Our product candidates and the activities associated with their development and commercialization in the United States, including, but not limited to, their advertising and promotion, will further be heavily scrutinized by the FDA, the United States Department of Justice, the United States Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress and the public. Violations of applicable law, including advertising, marketing and promotion of our products for unapproved (or off-label) uses, are subject to enforcement letters, inquiries and investigations, and civil, criminal and/or administrative sanctions by regulatory agencies. Additionally, comparable foreign regulatory authorities will heavily scrutinize advertising and promotion of any product candidate that obtains approval outside of the United States. In this regard, advertising and promotion of medicines in the European Union is governed by Directive 2001/83 EC, as amended, and any such activities which we may undertake in the European Union will have to be in strict compliance with the same. Any advertising of a prescription medicinal product to the public and any promotion of a medicinal product that does not have marketing authorization or is not promoted in accordance with that marketing authorization is prohibited. Advertisements and promotions of medicinal products are monitored nationally in the European Union, and each country will have its own additional advertising laws and industry governing bodies, whose obligations may go further than those set out in Directive 2001/83. For instance, in the United Kingdom the code of practice of the Association of the British Pharmaceutical Industry (the lead United Kingdom trade association) is considerably stricter than applicable legislative requirements. Any violations and sanctions will similarly be decided and administered by the relevant country’s national authority.

In the United States, engaging in the impermissible promotion of products for off-label uses can also subject the entity engaging in such conduct to false claims litigation under federal and state statutes, which can lead to civil, criminal and/or administrative penalties, damages, monetary fines, disgorgement, exclusion from participation in Medicare, Medicaid and other federal healthcare programs, curtailment or restructuring of its operations and agreements that materially restrict the manner in which it promotes or distributes drug products. Accordingly, we are subject to the federal civil False Claims Act, which prohibits persons and entities from knowingly filing, or causing to be filed, a false claim, or the knowing use of false statements, to obtain payment from the federal government. Certain suits filed under the civil False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in certain amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the civil False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. Various states have also enacted laws modeled after the federal civil False Claims Act.  We are also subject to the federal criminal False Claims Act, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious, or fraudulent. Additionally, we may be subject to civil monetary penalties that may be imposed against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to substantial civil and criminal settlements regarding certain sales practices, including promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claims action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and/or be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our products, we may become subject to such litigation, which may have a material adverse effect on our business, financial condition and results of operations.

While no definition of “off-label use” exists at the European Union level, promotion of a medicinal product for a purpose that has not been approved is strictly prohibited. Such promotion also gives rise to criminal prosecution in the European Union, and national healthcare supervisory authorities may impose administrative fines. Engaging in such promotions in the European Union could also lead to product liability claims, in accordance with EU product liability regime under Directive 85/374.

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The EMA’s, FDA’s, and other applicable government agencies’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval and marketing authorization, and t he sale and promotion of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing appro val that we may have obtained, and be subject to civil, criminal and administrative enforcement, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

The regulatory pathway for our product candidate, MIN-301, has not yet been determined. Depending on the pathway, we may be subject to different regulatory requirements.

MIN-301 is a peptide, and, as a peptide, may be subject to the Public Health Service Act, or PHSA, and the Food, Drug, and Cosmetic Act, or FDCA. We have yet to meet with the FDA regarding the approval pathway for this product candidate. Based on the definition of a biologic in the PHSA, we believe that MIN-301 meets the definition of a biologic and, thus, we will need to submit a Biologics License Application, or BLA, for product approval. Moreover, based on an FDA intercenter agreement, we believe that MIN-301 will be regulated by the FDA’s Center for Drug Evaluation and Research. However, we intend to discuss jurisdiction with the FDA to determine the appropriate regulatory pathway and corresponding requirements. Depending on the pathway, we may be subject to different regulatory requirements, including different regulatory and testing requirements, shorter or longer periods of market exclusivity, and different approval processes for generic drug and biosimilar competitors.

If the market opportunities for any product that we or our collaborators develop are smaller than we believe, our revenue may be adversely affected and our business may suffer.

Our product candidates are intended for the treatment of schizophrenia, MDD, insomnia and Parkinson’s disease. Our projections of both the number of people who have these disorders or disease, as well as the subsets of people who have the potential to benefit from treatment with our product candidates and who will pursue such treatment, are based on our beliefs and estimates that may prove to be inaccurate. For instance, with respect to schizophrenia and MDD, our estimates are based on the number of patients that suffer from schizophrenia and MDD, but these disorders are difficult to accurately diagnose and high rates of patients may not seek or continue treatment. Our estimates and beliefs are also based on the potential market of other drugs in development for schizophrenia and MDD, which may prove to be inaccurate and our advantages over such drugs may not be, or may not be perceived to be, as significant as we believe they are. If our estimates prove to be inaccurate, even if our products are approved, we may not be able to successfully commercialize them. In addition, the cause and pathophysiology of schizophrenia and MDD are not fully understood, and additional scientific understanding and future drug or non-drug therapies may make our product candidates obsolete.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates are developed through pre-clinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or future clinical trials to be conducted with the altered materials. Such changes may also require additional testing, EMA or FDA notification or EMA or FDA approval. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and/or jeopardize our ability to commence product sales and generate revenue.

Our failure to obtain regulatory approval in additional international jurisdictions would prevent us from marketing our product candidates outside the European Union and the United States.

We plan to seek regulatory approval to commercialize our product candidates in the European Union and, other than MIN-202, in the United States. We also expect to seek regulatory approval in additional foreign countries. To market and sell our products in other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain EMA or FDA approval. The regulatory approval process outside the European Union and United States generally includes risks substantially similar to those associated with obtaining EMA or FDA approval. In addition, in many countries outside the United States, we must secure product price and reimbursement approvals before regulatory authorities will approve the product for sale in that country or within a short time after receiving such marketing approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the

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regulatory approval process in others. Also, regulatory approval for any of our product candidates may be withdrawn. If we fail to comply with the regulatory requirements in international markets or do not receive applicable m arketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business will be adversely affected. We may not obtain foreign regulatory approvals on a timely basi s, if at all, especially because some foreign jurisdictions require prior approval of a treatment by the domestic regulatory agency. Our failure to obtain approval of any of our product candidates by regulatory authorities in another country may significan tly diminish the commercial prospects of that product candidate and our business prospects could decline.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than us.

The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. We face competition with respect to our current product candidates and will face competition with respect to any future product candidates from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Many of our competitors have significantly greater financial, technical and human resources. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Our competitors may obtain regulatory approval of their products more rapidly than us or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more effective, more convenient, more widely used, less costly and/or have a better safety profile than our products, and competitors may also be more successful than us in manufacturing and marketing their products.

Our competitors will also compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

There are numerous currently approved therapies for treating the same diseases or indications for which our product candidates may be useful and many of these currently approved therapies act through mechanisms similar to our product candidates. Many of these approved drugs are well-established therapies or products and are widely accepted by physicians, patients and third-party payors. Some of these drugs are branded and subject to patent protection and regulatory exclusivity, while others are available on a generic basis. Insurers and other third-party payors may encourage the use of generic products or specific branded products. Moreover, it is difficult to predict the effect that introduction of biosimilars into the market will have on sales of the reference biologic product, which will depend on the FDA’s standards for interchangeability, the structure of government and commercial managed care formularies, and state laws on substitution of biosimilars. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generics and biosimilars. This may make it difficult for us to differentiate our products from currently approved therapies, which may adversely impact our business strategy. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability, and safety in order to overcome price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer. Moreover, many companies are developing new therapeutics, and we cannot predict what the standard of care will be as our product candidates progress through clinical development.

Even if any of our drug candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

If any of our drug candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. If our drug candidates do not achieve an adequate level of acceptance, we may not generate significant revenue from drug sales and we may not become profitable. Our commercial success also depends on coverage and adequate reimbursement of our products by third-party payors, including government payors, which may be difficult or time-consuming to obtain, may be limited in scope or may not be obtained in all jurisdictions in which we may seek to market our products. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including:

 

the efficacy and perceived and potential advantages compared to alternative treatments, including any similar generics and biosimilars;

 

the timing of market introduction relative to alternative treatment;

 

our ability to offer our drugs for sale at competitive prices relative to alternative treatments;

 

the clinical indications for which the product candidate is approved;

 

the convenience and ease of administration compared to alternative treatments;

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the willingn ess of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

the strength of our marketing and distribution support;

 

the availability of third-party coverage and adequate reimbursement for our products or the willingness of patients to pay out-of-pocket in the absence of coverage and adequate reimbursement by third-party payors;

 

unfavorable publicity relating to the products;

 

the prevalence and severity of any side effects; and

 

any restrictions on the use of our drugs together with other medications.

Our focus on CNS disorders, in particular, exposes us to an increased risk that serious side effects and disease events, including suicide, will occur during patient use of our products, even if such side effects and disease events are unrelated to the use of our products. Most approved CNS medicines carry boxed warnings for clinically significant adverse events, and our products may categorically need to carry such warnings as well.

We currently have no marketing and sales organization. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.

We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any product candidates, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so on commercially reasonable terms or at all.

If our product candidates receive regulatory approval, we intend to establish our sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time consuming and may require substantial investments prior to any product candidate being granted regulatory approval. In selling, marketing and distributing our products ourselves, we face a number of additional risks, including:

 

our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the clinical benefits of our products to achieve market acceptance;

 

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;

 

the costs associated with training sales personnel on legal compliance matters and monitoring their actions;

 

liability for sales personnel failing to comply with the applicable legal requirements; and

 

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products.

We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we enter into arrangements with third parties to perform sales, marketing and distribution services for our products, the resulting revenues or the profitability from these revenues to us are likely to be lower than if we had sold, marketed and distributed our products ourselves. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval. Depending on the nature of the third party relationship, we may have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively.

If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.

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Even if we commercialize any of our product candidates, these products may bec ome subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could harm our business.

The laws that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. In many countries, the pricing review period begins after marketing or product licensing approval is granted. Some countries require approval of the sale price of a drug before it can be marketed or soon thereafter. Additionally, in some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues we generate from the sale of the product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates even if our product candidates obtain marketing approval.

In the European Union, the pricing and reimbursement of prescription drugs is controlled by each member state. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures in the current economic climate in Europe. There is very limited harmonization on member state pricing and reimbursement practices in the European Union.

Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In particular, Germany, Portugal and Spain have all introduced a number of short-term measures to lower healthcare spending, including mandatory discounts, clawbacks and price referencing rules, which could have a material adverse effect on our business.

Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available.

Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices as a condition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive classes, and are challenging the prices charged for medical products. In addition, in the United States, federal programs impose penalties on drug manufacturers in the form of mandatory additional rebates and/or discounts if commercial prices increase at a rate greater than the Consumer Price Index-Urban, and these rebates and/or discounts, which can be substantial, may impact our ability to raise commercial prices. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize any product candidate for which we obtain marketing approval.

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There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for wh ich the drug is approved by the EMA, FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, dev elopment, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Prices paid for a drug also vary depending on the class of trade. Prices charged to gover nment customers and certain customers that receive federal funds are subject to price controls, and private institutions may obtain discounts through group purchasing organizations or use formularies to leverage discounts. Net prices for drugs may be reduc ed by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices.  Specifically, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Our inability to promptly obtain coverage and profi table reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

*Recently enacted and future legislation may increase the difficulty and cost for us to commercialize our product candidates and affect the prices we may obtain.

In the United States and many foreign jurisdictions, the legislative landscape continues to evolve. There have been a number of enacted or proposed legislative and regulatory changes affecting the healthcare system and pharmaceutical industry that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidate for which we obtain marketing approval.

For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or, collectively, the ACA, a law intended to, among other things, broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional health policy reforms. Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA. In addition, the current administration and Congress will likely continue to seek legislative and regulatory changes, including repeal and replacement of certain provisions of the ACA. In January 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceutical or medical devices. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenue, if any.

In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, particularly in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug. To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a health technology assessment that compares the cost-effectiveness of our drug candidate to other available therapies. There can be no assurance that our products will be considered cost-effective, that an adequate level of reimbursement will be available or that a foreign country’s reimbursement policies will not adversely affect our ability to sell our products profitably.

If reimbursement of our drugs is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.

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*Our international operations are subject to foreign currency and exchange rate risks.

Because we plan to continue to conduct our clinical trials in Europe, we are exposed to currency fluctuations and exchange rate risks. The costs of our CROs may be incurred in Euros and we may pay them in Euros, however, we expect to keep the substantial portion of our cash, cash equivalents and marketable securities and private placement transactions, in United States Dollars. Therefore, fluctuations in foreign currencies, especially the Euro, could significantly impact our costs of conducting clinical trials. In addition, we may have to seek additional funding earlier than expected, which may not be available on acceptable terms or at all. Changes in the applicable currency exchange rates might negatively affect the profitability and business prospects of the third parties conducting our future clinical trials. This might cause such third parties to demand higher fees or discontinue their operations. These situations could in turn increase our costs or delays our clinical development, which could have a material adverse effect on our business, financial condition and results of operations.

A variety of risks associated with international operations could materially adversely affect our business.

We expect to engage in significant cross-border activities, and we will be subject to risks related to international operations, including:

 

different regulatory requirements for maintaining approval of drugs in foreign countries;

 

reduced protection for contractual and intellectual property rights in certain countries;

 

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

workforce uncertainty in countries where labor unrest is more common than in North America;

 

tighter restrictions on privacy and the collection and use of patient data; and

 

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

If any of these issues were to occur, our business could be materially harmed.

If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, especially Dr. Remy Luthringer, whose services are critical to the successful implementation of our product candidate development and regulatory strategies. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. In order to induce valuable employees to continue their employment with us, we have provided stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.

Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Pursuant to their employment arrangements, each of our executive officers may voluntarily terminate their employment at any time by providing as little as thirty days advance notice. Our employment arrangements, other than those with our executive officers, provide for at-will employment, which means that any of our employees (other than our executive officers) could leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.

We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.

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* We will need to grow the size of our orga nization, and we may experience difficulties in managing this growth.

As of March 31, 2017, we had ten full-time employees. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including:

 

managing our clinical trials effectively;

 

identifying, recruiting, maintaining, motivating and integrating additional employees;

 

managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, collaborators, contractors and other third parties;

 

improving our managerial, development, operational and finance systems; and

 

developing our compliance infrastructure and processes to ensure compliance with complex regulations and industry standards regarding us and our product candidates.

As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, collaborators, suppliers and other third parties. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

We are party to a loan and security agreement that contains operating and financial covenants that may restrict our business and financing activities.

On January 16, 2015, we entered into a Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank, providing for term loans to us in an aggregate principal amount of up to $15 million, in two tranches of $10 million and $5 million, respectively.  We borrowed the first tranche in January 2015. In June 2016, we irrevocably elected not to borrow the additional $5 million available under the term loans .  Borrowings under this loan and security agreement are secured by substantially all of our assets, excluding certain intellectual property rights.  The loan and security agreement restricts our ability, among other things, to:

 

sell, transfer or otherwise dispose of any of our business or property, subject to limited exceptions;

 

make material changes to our business or management;

 

enter into transactions resulting in significant changes to the voting control of our stock;

 

make certain changes to our organizational structure;

 

consolidate or merge with other entities or acquire other entities;

 

incur additional indebtedness or create encumbrances on our assets;

 

pay dividends, other than dividends paid solely in shares of our common stock, or make distributions on and, in certain cases, repurchase our stock;

 

enter into transactions with our affiliates;

 

repay subordinated indebtedness; or

 

make certain investments.

In addition, we are required under our loan agreement to comply with various affirmative operating covenants.  The operating covenants and restrictions and obligations in our loan and security agreement, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies.  Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenants could result in a default under the loan and security agreement, which could cause all of the outstanding indebtedness under the facility to become immediately due and payable and eliminate our eligibility to receive additional loans under the agreement.

If we are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either as when such obligations become due, when they mature, or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our business operations and financial condition.

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Future acquisitions, mergers or joint vent