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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2021

OR

For the transition period from                      to                     

Commission File No. 001-36517

Minerva Neurosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

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

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

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

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

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

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

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 November 3, 2021 was 42,721,566.

INDEX TO FORM 10-Q

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

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements reflect our plans, estimates and beliefs. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item IA, “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2020 under Part I, Item IA, “Risk Factors.”

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

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

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PART I – Financial Information

Item 1 – Financial Statements

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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MINERVA NEUROSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

As of September 30, 2021 and for the Nine Months Ended September 30, 2021 and 2020

(Unaudited)

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

You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our annual audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission on March 8, 2021.

Overview

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

We are developing roluperidone (f/k/a MIN-101) for the treatment of negative symptoms in patients with schizophrenia and MIN-301 for the treatment of Parkinson’s disease. In addition, we previously co-developed seltorexant (f/k/a MIN-202 or JNJ-42847922) with Janssen Pharmaceutica NV (“Janssen”) for the treatment of insomnia disorder and adjunctive treatment of Major Depressive Disorder (“MDD”). During 2020, we exercised our right to opt out of a joint development agreement with Janssen for the future development of seltorexant. As a result, we were entitled to collect royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no further financial obligations to Janssen. In January 2021, we sold our rights to these potential royalties to Royalty Pharma plc (“Royalty Pharma”).

On November 30, 2020 we received official meeting minutes from our November 10, 2020 Type C meeting with the U.S. Food and Drug Administration (“FDA”) regarding the development of roluperidone for treatment of negative symptoms of schizophrenia. The objective of this meeting was to obtain FDA input regarding the roluperidone data package and its readiness to support a New Drug Application (“NDA”). We summarized FDA’s comments in our 10-K filed on March 8, 2021.

On November 3, 2021 we announced that the FDA denied our request for a pre-NDA meeting for roluperidone and responded that a Type C guidance meeting would be more appropriate to discuss the evidence for use of roluperidone as monotherapy. Subject to the timing of and feedback from the FDA at a Type C guidance meeting, which we plan to request, we have not changed our projected timeline for submission of an NDA in the first half of 2022.

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 every year 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 and Regulatory Update

Roluperidone

Open Label Extension

On May 11, 2021, we announced results from the 40-week open-label extension (OLE) of the Company’s phase 3 trial of roluperidone for the treatment of negative symptoms (NS) of schizophrenia. The OLE followed the 12-week double-blind, placebo-controlled portion of this trial. During the 40-week OLE, both investigators and patients were blinded to the roluperidone dose received. The OLE was designed to evaluate the safety of roluperidone after long-term exposure. Efficacy endpoints were also assessed during the OLE period. As such, efficacy data collected during the OLE are not placebo-controlled and therefore their interpretation is limited.

Over the 40-week OLE period, 333 patients participated, of whom 166 patients received the 32 mg dose and 167 patients received the 64 mg dose. A total of 202 of the 333 patients completed the 40-week OLE period.

The mean improvement in negative symptoms was 6.8 points in the 32 mg arm and 7.5 points in the 64 mg arm. PSP total score improved by a mean of 12.3 points in the 32 mg arm and 14.5 points in the 64 mg arm, suggesting functional improvement.

The mean improvement in positive symptoms, as measured by the Positive and Negative Syndrome Scale (“PANSS”) positive symptom subscore was 1.9 points in the 32 mg arm and 1.8 points in the 64 mg arm.

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Reduced emotional experience, as measured by a sub-factor of the Negative Symptoms Factor Score (“NSFS”) that assesses a patient’s motivation to take part in everyday life activities, had a mean improvement of 2.8 points in the 32 mg group and 3.0 points in the 64 mg group.

The relapse rate during the OLE, defined as patients being withdrawn from the trial due to worsening of symptoms of psychosis, was 15 patients out of 166 patients (9%) in the 32 mg arm and 10 patients out of 167 patients (6%) in the 64 mg arm. Over the one-year duration the relapse rate was 11.7% overall.

Roluperidone at both doses was safe and well tolerated and treatment-emergent adverse events (TEAE) were generally mild to moderate in severity. The most frequently reported TEAE in the overall group of 333 patients that participated in the OLE were headaches in 26 patients (7.8%), followed by worsening of schizophrenia in 18 patients (5.4%) and insomnia in 15 patients (4.5%). No other TEAE was reported by more than 4% of the patients. There was one death that occurred after treatment discontinuation (45-year old male) in the 64 mg arm due to treatment-unrelated respiratory failure. Twenty patients (6%) experienced serious adverse events, with the majority of them associated with the disease characteristics, and only 5 were judged by the investigator to be related to roluperidone. In total, 37 patients (11%) did not complete the OLE due to TEAE, with 25 patients (7.5%) due to relapse-related events and the remaining 12 patients due to a variety of other TEAE reported in ≤1% of the patients. Few QT prolongations were observed during the OLE, were generally transient in duration and only one in the 64 mg arm led to discontinuation from the study.

As previously announced on May 29, 2020, the double-blind, placebo-controlled portion of the Phase 3 trial enrolled a total of 515 patients that were randomized in a 1:1:1 ratio to 32 mg/day roluperidone, 64 mg/day roluperidone, or placebo for 12 weeks, and 513 patients received study drugs. The 12-week double-blind, placebo-controlled portion of the trial did not meet its primary or key secondary endpoints in the intent-to-treat population. The 32 mg and 64 mg doses were not statistically significantly different from placebo at week 12 on the primary endpoint of NSFS (p ≤0.259 and p ≤0.064, respectively), or on the key secondary endpoint, PSP total score (p ≤0.542 and nominal p ≤0.021, respectively). The subsequent analysis of the change in baseline in NSFS and PSP total score based on the modified ITT population treated with the 64 mg dose resulted in nominally statistically significant p ≤0.044 and p ≤0.017, respectively.

Pivotal Bioequivalence Study

On September 30, 2021, we announced results from a pivotal bioequivalence study comparing the roluperidone formulations used in our late-stage Phase 2b, Phase 3 trials, and the planned commercial formulation. The planned commercial formulation was tested under both fasted and fed condition. The study met key pharmacokinetic (PK) objectives, and the data demonstrate bioequivalence across the various formulations. Subject screening in this study was initiated on April 23, 2021, the completion of the enrollment of 48 healthy volunteers was achieved on June 29, 2021, and the last subject assessment took place on July 26, 2021. Subjects were randomized to the four treatment sequences described above in a 1:1:1:1 ratio. Of the 48 subjects randomized, 45 completed all study periods. Male subjects constituted 69% of the participants, and 75% of the subjects were white. Median age was 36 years, and all had negative SARS-CoV2 status at the beginning of the study and of every study period with the exception of 1 subject who tested positive at the beginning of study Period 4 and was discontinued. The mean body mass index was 28.1±4 kg/m². The results demonstrate the comparability of the formulations used in the late-stage efficacy and safety trials of roluperidone with the planned commercial formulation and allow administration of the drug with or without food.

Seltorexant

In June 2020 we exercised our right to opt out of our agreement with Janssen for the future Phase 3 development and commercialization of seltorexant. Under the terms of the opt-out agreement, we are entitled to collect royalties in the mid-single digits on potential future worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen. In January 2021 we sold our rights to these potential royalties to Royalty Pharma for a $60 million cash payment and up to an additional $95 million in potential milestone payments, subject to completion of the Phase 3 program by Jansen and regulatory approvals. As a result of the sale, we will recognize non-cash interest expense related to the amortization of estimated future royalty payments to Royalty Pharma. Accordingly, for the three and nine months ended September 30, 2021, we recognized $1.7 million and $4.6 million in non-cash interest expense related to this agreement.  

The $60 million payment received from Royalty Pharma has been included on our balance sheet under Liability related to the sale of future royalties. As we recognize interest expense, the Liability related to the sale of future royalties will increase until such time that we begin to receive the related royalty payments. Under the terms of the agreement, all payments from Royalty Pharma to Minerva, including the initial upfront payment of $60 million as well as amortized interest expense, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any reason.

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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.

Collaborative Revenue. During 2020 we exercised our right to opt out of the joint development agreement with Janssen for the future development of seltorexant. As a result, we have no future obligations under the agreement and recognized approximately $41.2 million in collaborative revenue during 2020, which we had previously included on our balance sheet under deferred revenue.

Research and Development Expenses. 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 (“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.

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 Expenses. 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.

We expect to continue to incur general and administrative expenses related to operating as a publicly traded company, including increased audit and legal fees, costs of compliance with securities laws, corporate governance and other regulations, investor relations expenses and higher insurance premiums.

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 United States 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.

Non-cash interest expense for the sale of future royalties. Non-cash interest expense for the sale of future royalties consists of the interest expense associated with the Royalty Pharma agreement.

Results of Operations

Comparison of Three Months Ended September 30, 2021 versus September 30, 2020

Research and Development Expenses

Research and development expenses were $4.5 million and $4.6 million for the three months ended September 30, 2021 and 2020, respectively, a decrease of approximately $0.1 million. The decrease in research and development expenses was primarily due to a decrease in non-cash stock-based compensation expenses. Non-cash stock compensation expense included in research and development expenses was $0.5 million and $0.8 million for the three months ended September 30, 2021 and 2020, respectively.

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General and Administrative Expenses

General and administrative expenses were $3.0 million and $3.5 million for the three months ended September 30, 2021 and 2020, respectively, a decrease of approximately $0.5 million. The decrease in general and administrative expenses was primarily due to a decrease in non-cash stock-based compensation expenses and insurance costs. Non-cash stock compensation expense included in general and administrative expenses was $0.6 million and $1.2 million for the three months ended September 30, 2021 and 2020, respectively.

Foreign Exchange Losses

Foreign exchange losses were $5 thousand and $27 thousand for the three months ended September 30, 2021 and 2020, respectively, an increase of $22 thousand. The decrease in foreign exchange losses was primarily due to a lower level of clinical activities in 2021 denominated in Euros.

Investment Income

Investment income was $4 thousand and $5 thousand for the three months ended September 30, 2021 and 2020, respectively, a decrease of $1 thousand. The decrease was primarily due to lower interest rates during 2021.

Non-cash interest expense for the sale of future royalties

Non-cash interest expense for the sale of future royalties was $1.7 million for the three months ended September 30, 2021 and zero for the prior year period. The increase was primarily due to the sale of our royalty interest in seltorexant to Royalty Pharma and the effective interest associated with the agreement, see Note 6 for the sale of future royalties.

Comparison of Nine Months Ended September 30, 2021 versus September 30, 2020

Collaborative Revenue

Collaborative Revenue was zero and $41.2 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $41.2 million. The decrease in collaborative revenue was the result of opting out of our co-development and license agreement with Janssen and recognizing the revenue during the nine months ended September 30, 2020 and no similar activity in the corresponding period in 2021.

Research and Development Expenses

Research and development expenses were $13.3 million and $18.5 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease of approximately $5.2 million. The decrease in research and development expenses was primarily due to a decrease in non-cash stock-based compensation expenses and lower costs for the Phase 3 clinical trial of roluperidone as a result of the completion in May 2020 of the three-month core study portion of the trial. Non-cash stock compensation expense included in research and development expenses was $1.8 million and $2.2 million for the nine months ended September 30, 2021 and 2020, respectively.

General and Administrative Expenses

General and administrative expenses were $10.7 million and $13.5 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease of approximately $2.8 million. The decrease in general and administrative expenses was primarily due to a decrease in non-cash stock-based compensation expenses and severance benefits. Non-cash stock compensation expense included in general and administrative expenses was $2.2 million and $5.6 million for the nine months ended September 30, 2021 and 2020, respectively. The decrease in stock compensation expense of $3.4 million was due primarily to certain stock option awards approved in June 2020 as well as additional stock compensation expense incurred under a severance agreement during 2020.

Foreign Exchange Losses

Foreign exchange losses were $29 thousand and $41 thousand for the nine months ended September 30, 2021 and 2020, respectively, an increase of $12 thousand. The decrease in foreign exchange losses was primarily due to a lower level of clinical activities in 2021 denominated in Euros.

Investment Income

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Investment income was $13 thousand and $160 thousand for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $147 thousand. The decrease was primarily due to lower average balances for cash equivalents and marketable securities during 2021.

Non-cash interest expense for the sale of future royalties

Non-cash interest expense for the sale of future royalties was $4.6 million for the nine months ended September 30, 2021 and zero for the prior year period. The increase was primarily due to the sale of our royalty interest in seltorexant to Royalty Pharma and the effective interest associated with the agreement, see Note 6 for the sale of future royalties.

Liquidity and Capital Resources

Sources of Liquidity

As of September 30, 2021, we had an accumulated deficit of approximately $313.4 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 September 30, 2021, we had approximately $65.7 million in cash, cash equivalents, and restricted cash. In January 2021, Royalty Pharma acquired our royalty interest in seltorexant for an upfront payment of $60 million and up to an additional $95 million in potential milestone payments. The potential future milestone payments to us will be contingent on the achievement of certain clinical, regulatory and commercialization milestones for seltorexant by Janssen. Seltorexant is currently in Phase 3 development for the treatment of MDD with insomnia symptoms by Janssen. We believe that our existing cash, cash equivalents, and restricted cash 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, the infrastructure to support a commercial enterprise, the cost of a commercial product launch 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

At-the-Market Equity Offering Program

In August 2018 we entered into the Sales Agreement with Jefferies LLC pursuant to which we may offer and sell, from time to time, through Jefferies, up to $50.0 million in shares of our common stock, by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. During the year ended December 31, 2020, we issued and sold 3,381,608 shares of our common stock under the Sales Agreement. The shares were sold at an average price of $3.7113 per share for aggregate net proceeds to us of approximately $12.1 million, after deducting sales commissions and offering costs payable by us.

Seltorexant Royalties

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

On January 19, 2021, we entered into an agreement with Royalty Pharma under which Royalty Pharma has acquired our royalty interest in seltorexant for an upfront payment of $60 million and up to an additional $95 million in potential milestone payments, contingent upon the achievement of certain clinical, regulatory and commercial milestones for seltorexant by Janssen.

Uses of Funds

To date, we have not generated any revenue from sales of products. We have only generated collaborative revenue due to opting out of our license and co-development agreement with Janssen, and have only generated revenue from the one-time sale of our royalty interests in seltorexant to Royalty Pharma. We do not know when, or if, we will generate any revenue from sales of our products, or from the potential future royalty streams associated with the sale of our royalty interests in seltorexant to Royalty Pharma. 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,

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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.

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 funds through government or other third 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, and the uncertainty and volatility in the capital markets caused by the continuing COVID-19 pandemic may negatively impact the availability and cost of capital. If we are unable to obtain additional financing, future operations would need to be scaled back or discontinued. We believe that our existing cash, cash equivalents, and restricted cash 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 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.

Cash Flows

The tables below set forth our significant sources and uses of cash for the periods.

Net Cash Used in Operating Activities

Net cash used in operating activities of approximately $19.8 million during the nine months ended September 30, 2021 was primarily due to our net loss of $28.6 million, a $0.1 million increase in capitalized software, and approximately a $0.1 million decrease in accrued expenses, partially offset by stock-based compensation expense of $4.0 million, non-cash interest expense for the sale of future royalties of $4.6 million, a $0.2 million decrease in prepaid expense, and a $0.2 million increase in accounts payable.

Net cash used in operating activities of approximately $26.7 million during the nine months ended September 30, 2020 was primarily due to our net income of $9.3 million, stock-based compensation expense of $7.7 million, and a $0.4 million increase in accrued expenses, partially offset by a decrease in deferred revenue of $41.2 million, a $1.7 decrease in accounts payable, and an increase prepaid expense of $1.2 million.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was zero during the nine months ended September 30, 2021.

Net cash provided by investing activities of approximately $24.5 million during the nine months ended September 30, 2020 was primarily due to the maturity and redemption of marketable securities of $28.4 million, partially offset by the purchase of marketable securities of $3.9 million. .

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Net Cash Provided by Financing Activities

Net cash provided by financing activities of $60 million during the nine months ended September 30, 2021 was due to the proceeds from the sale of future royalties of $60 million.

Net cash provided by financing activities of $13.3 million during the nine months ended September 30, 2020 was due to gross proceeds received from the ‘at the market’ stock offering of $12.6 million less costs of $0.4 million, and proceeds from the exercise of common stock options of $1.1 million.

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, 2020, our most critical accounting policies and estimates upon which our financial status depends were identified as those relating to research and development costs; in-process research and development; goodwill; and income taxes. We reviewed our policies and determined that those policies and the accounting policies and estimates relating to the liability related to the sale of future royalties were our most critical accounting policies for the nine months ended September 30, 2021.

Liability related to the sale of future royalties

The Company treats the sale of future royalties to Royalty Pharma as a debt financing, as the Company has significant continuing involvement in facilitating the transfer of royalties to Royalty Pharma and Royalty Pharma has recourse against the Company relating to the payments due from Janssen. As a result, the Company recorded the upfront payment of $60 million from this transaction as a liability related to the sale of future royalties to be amortized to interest expense using the effective interest rate method over the life of the arrangement. Under the terms of the agreement, all payments from Royalty Pharma to Minerva, including the initial upfront payment of $60 million as well as amortized interest expense, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any reason.

The liability related to sale of future royalties and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement. The Company will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent the Company’s future estimates of royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than its previous estimates, the Company will prospectively recognize related non-cash interest expense.

For further discussion of the sale of future royalties, please refer to Note 6, Sale of Future Royalties.

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.

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Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

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 our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, 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 changes in internal control over financial reporting during our latest fiscal quarter that would have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1.   Legal Proceedings

On December 8, 2020 and January 11, 2021, purported stockholders of the Company filed two putative securities class action complaints in the United States District Court for the District of Massachusetts, entitled McCoy v. Minerva Neurosciences, Inc., et al., No. 1:20-cv-12176 and Ao v. Minerva Neurosciences, Inc. et al., No. 1:21-cv-10051, respectively, against the Company and the Company’s Chairman and Chief Executive Officer (collectively, the “Defendants"). The complaints are nearly identical and allege that the Defendants made material false and/or misleading statements regarding the development of the Company’s drug candidate roluperidone purportedly causing losses to investors who acquired the Company’s common stock between May 15, 2017 and November 30, 2020. The complaints do not quantify any alleged damages but, in addition to attorneys' fees and costs, plaintiffs seek to recover damages on behalf of themselves and others who acquired the Company’s stock during the putative class period at allegedly inflated prices and purportedly suffered financial harm as a result. On March 5, 2021, the Court entered an order consolidating the actions into a case captioned In re Minerva Neurosciences, Inc. Securities Litigation, No. 1:20-cv-12176 and appointing lead plaintiffs and their counsel. On March 19, 2021, the parties filed a stipulated proposed order with the Court staying the Defendants’ response to the complaint until after plaintiffs file an amended complaint. On May 5, 2021, the parties filed a stipulation and proposed order voluntarily dismissing the lawsuit on behalf of the appointed lead plaintiffs. Also on May 5, 2021, a second plaintiff filed a motion for appointment as lead plaintiff, which the Court granted on May 21, 2021. On June 9, 2021, before the lead plaintiff’s deadline to amend the complaint and before defendants filed any response to the complaint, the parties stipulated to voluntary dismissal of the lawsuit on behalf of the appointed lead plaintiff. The Court entered the parties’ stipulation of dismissal on July 9, 2021 and closed the case.

Item 1A.   Risk Factors

We operate in a rapidly changing environment that involves a number of risks which could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I-Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 8, 2021. The risk factors set forth below are 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, 2020, as filed with the SEC.

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. (“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. Our recent collaborative revenue was due to the recognition of deferred revenue as a result of opting out of an agreement, and is not a recurring source of revenue.

As of September, 30, 2021, we had an accumulated deficit of $313.4 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.

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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. As of September 30, 2021, we had cash, cash equivalents, and restricted cash of $65.7 million. We believe that our existing cash, cash equivalents, and restricted cash will be sufficient to meet our cash commitments for at least the next 12 months after 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 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, the infrastructure to support a commercial enterprise, the cost of a commercial product launch and the level of financial resources available.

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

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.

We are subject to risks and uncertainties as a result of the ongoing COVID-19 pandemic, and could be subject to risks from further health pandemics or epidemics, as well as uncertainty regarding returning to work and phased re-openings.

Our business could be adversely affected by the effects of health pandemics or epidemics, including the ongoing COVID-19 pandemic, which continues to have a negative impact on the local, regional, national and global scale. In response to the pandemic, a number of jurisdictions in which we or our service providers operate implemented shelter-in-place or similar type restrictions, which limited on-site activity to certain service providers. To support the health and well-being of our employees, partners and communities, we implemented work-from-home policies for our employees, which continue to be in effect. While global vaccination efforts are underway and certain jurisdictions, including Massachusetts, have reopened businesses and governmental agencies, there remain limitations on the physical operations of businesses and prohibitions on certain non-essential gatherings, and we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the duration of the outbreak, the result of vaccination efforts, resurgence of the virus, actions that may be taken by governmental authorities, the impact on our business including our clinical programs and timelines, and the impact to the business of our service providers and partners. The magnitude of the negative effects of COVID-19 will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course, and our ability to respond with minimal disruptions to the evolving restrictions, reopenings, and any future curtailment. These and similar, and perhaps more severe, disruptions in our operations in response to the ongoing COVID-19 pandemic and any future health pandemics or epidemics could negatively impact our business, operating results and financial condition.

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In addition, our clinical trials may be affected by the COVID-19 pandemic. We may face difficulties enrolling or retaining patients in future clinical trials if patients are affected by the COVID-19 virus or are unable to travel to the clinical trial sites or obtain study medication. Our clinical trials may further be delayed due to prioritization of hospital resources toward the COVID-19 pandemic, and some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to the COVID-19 virus, could be delayed or disrupted, which would adversely impact our clinical trial operations. As a result, we could experience delays in the completion of our trials, which could result in a material adverse impact on our clinical trial plans and timelines.

Furthermore, the COVID-19 pandemic has caused a broad negative impact globally on capital markets and economies worldwide, which could have a negative impact on us economically. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic, may be difficult to assess or predict, it is currently resulting in significant disruption of global financial markets. This disruption, if sustained or recurrent, could have a material adverse effect on our operating results, our ability to raise capital needed to develop and commercialize products and our overall financial condition. In addition, a recession or market correction resulting from the spread of the coronavirus could materially affect the value of our common stock.

The extent of the impact of the COVID-19 pandemic on our business is uncertain and difficult to predict, as the pandemic continues to rapidly evolve. The ultimate impact of the COVID-19 pandemic or a similar health pandemic or epidemic is highly uncertain and subject to change. We do not yet know the extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. These effects could have a material impact on our operations, and we will continue to monitor the COVID-19 pandemic closely.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.   Defaults upon Senior Securities

Not applicable.

Item 4.   Mine Safety Disclosures

Not applicable.

Item 5.   Other Information

Not applicable.

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Item 6.   Exhibits

The following exhibits are incorporated by reference or filed as part of this report.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 8, 2021

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