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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

For the quarterly period ended March 31, 2019

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)

 

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  ☒

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

 

The number of shares of Registrant’s Common Stock, $0.0001 par value per share, outstanding as of May 1, 2019 was 39,025,471.

 

 

 

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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 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.

 

 

 

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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 Statement 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 March 31, 2019 and for the Three Months Ended March 31, 2019 and 2018

(Unaudited)

 

NOTE 1 — NATURE OF OPERATIONS AND LIQUIDITY

Nature of Operations

Minerva Neurosciences, Inc. (“Minerva” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat patients suffering from central nervous system diseases. The Company 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 roluperidone (also known as MIN-101), a compound the Company is developing for the treatment of schizophrenia. In addition, the Company’s portfolio includes seltorexant (also known as MIN-202 or 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 roluperidone and MIN-117 from Mitsubishi Tanabe Pharma Corporation (“MTPC”) with the rights to develop, sell and import roluperidone and MIN-117 globally, excluding most of Asia. With the acquisition of Mind-NRG, the Company obtained exclusive rights to develop and commercialize MIN-301. 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 seltorexant in the European Union, Switzerland, Liechtenstein, Iceland and Norway (the “Minerva Territory”), subject to certain 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, 2019, the Company has an accumulated deficit of approximately $230.4 million and net cash used in operating activities was approximately $9.6 million during the three months ended March 31, 2019. Management expects to continue to incur operating losses and negative cash flows from operations. The Company has financed its operations to date from proceeds from the sale of common stock, warrants, loans and convertible promissory notes.

As of March 31, 2019, the Company had cash, cash equivalents, marketable securities, and restricted cash of $79.3 million. The Company believes that its existing cash, cash equivalents, restricted cash and marketable securities will be sufficient to meet its cash commitments for at least the next 12 months after the date that the interim condensed financial statements are issued. The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain. The assumptions upon which the Company has based its estimates are routinely evaluated and may be subject to change. The actual amount of the Company’s expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of the Company’s research and development programs, the infrastructure to support a commercial enterprise, the cost of a commercial product launch and the level of financial resources available. The Company has the ability to adjust its operating plan spending levels based on the timing of future clinical trials which will be predicated upon adequate funding to complete the trials.

The Company will need to raise additional capital in order to continue to fund operations and fully fund 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.

 

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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, 2019, the results of operations for the three months ended March 31, 2019 and 2018 and cash flows for the three months ended March 31, 2019 and 2018. The results of operations for the three months ended March 31, 2019 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, 2018 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, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2019.

Consolidation

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

Significant risks and uncertainties

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

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

Use of estimates

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

Cash and cash equivalents

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

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Marketable securities

Marketable securities consists of corporate and U.S. government debt securities maturing in six months or less. Based on the Company’s intentions regarding its marketable securities, all marketable securities are classified as held-to-maturity and are carried under the amortized cost approach. The Company’s investments in marketable securities are classified as Level 2 within the fair value hierarchy. As of March 31, 2019, remaining final maturities of marketable securities ranged from April 2019 to September 2019, with a weighted average remaining maturity of approximately 3.2 months. The following table provides the amortized cost basis, aggregate fair value, unrealized gains/losses, and the net carrying value of investments in held-to-maturity securities as of March 31, 2019:

 

 

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 $100 thousand at March 31, 2019 and December 31, 2018.

 

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 anticipated costs are expected to be incurred ratably during the period. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expenses. 

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.

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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, 2019 or 2018.

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, actual 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.

Foreign currency transactions

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

Loss per share

Basic loss per share 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 treasury stock method is used to determine the dilutive effect of the Company’s stock options and warrants. 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.

Equipment

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

 

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Leases

 

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

 

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

 

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

 

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

 

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

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, 2019 and 2018.

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, 2019 and 2018.

Revenue recognition

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

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

Deferred revenue

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

Segment information

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

Comprehensive loss

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

Recent accounting pronouncements

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

 

Recently adopted accounting pronouncements

 

In 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 was 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.

 

The Company adopted ASC 842 on January 1, 2019 using a cumulative-effect adjustment on the effective date of the standard, for which comparative periods are presented in accordance with the previous guidance in ASC 840.

 

In adopting ASC 842, the Company elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard, which did not require the reassessment of the following: (i) whether existing or expired arrangements are or contain a lease, (ii) the lease classification of existing or expired leases, and (iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. Additionally, the Company made an accounting policy election to exclude leases with a term of 12 months or less from its balance sheet.

 

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The adoption of this standard resulted in the recognition of operating lease liabilities and right-of-use assets of $0.4 million and $0.4 million, respectively, on the Company’s balance sheet relating to its leases for its corporate headquarters at 1601 Trapelo Road, Suite 286, Waltham, MA 02451. The adoption of the standard did not have a material effect on the Company’s condensed consolidated statements of operation and comprehensive loss or condensed consolidated statements of cash flows.

 

Refer to Note 10 – Leases, for the Company’s current lease commitments.

 

In March 2017, the FASB issued ASU No. 2017-08, 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 adopted the new standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The new standard is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. This update expands the scope of Topic 718, Compensation-Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The new standard supersedes Subtopic 505-50, Equity-Equity-Based payments to Non-Employees. The update is effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company adopted the new standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Accounting pronouncements not yet adopted

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

 

NOTE 3 — ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

 

 

NOTE 4 — NET LOSS PER SHARE OF COMMON STOCK

Diluted loss per share is the same as basic loss per share for all periods presented as the effects of potentially dilutive items were anti-dilutive given the Company’s net loss. Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding. The following table sets forth the computation of basic and diluted loss per share for common stockholders:

 

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The following securities outstanding at March 31, 2019 and 2018 have been excluded from the calculation of weighted average shares outstanding as their effect on the calculation of loss per share is antidilutive:

 

 

 

 

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 bore interest at a fixed rate of 7.05% per annum. The Company believes that the Company's debt obligations accrued interest at rates which approximated prevailing market rates for instruments with similar characteristics and, accordingly, the carrying values for these instruments approximated fair value.

The Company paid a facility fee at the time of borrowing of $75 thousand for access to the Term Loans and paid a final payment of $510 thousand in August 2018, representing 5.1% of the total amount borrowed, which has been included as a component of the debt discount and was amortized to interest expense over the term of the loans. The Term Loans matured on August 1, 2018 and the Company made a final repayment in the amount of $510 thousand on such date. As of March 31, 2019, the Company had no borrowings outstanding under the Term Loans.

 

For the three months ended March 31, 2019 and 2018, the Company recognized interest expense of zero and $0.1 million respectively, including zero and $24 thousand, respectively, related to the debt discount.

 

NOTE 6 — CO-DEVELOPMENT AND LICENSE AGREEMENT

On February 13, 2014, the Company signed a co-development and license agreement (the “Agreement”) with Janssen, which became effective upon completion of the Company’s initial public offering and provided for the payment of a $22.0 million license fee by the Company. Under the Agreement, Janssen, the licensor, granted the Company an exclusive license, with the right to sublicense, in the Minerva Territory, under (i) certain patent and patent applications to sell products containing any orexin 2 compound, controlled by the licensor and claimed in a licensor patent right as an active ingredient, and (ii) seltorexant for any use in humans. In addition, upon regulatory approval in the Minerva Territory (and earlier if certain default events occur), the Company will have rights to manufacture seltorexant, 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 covering selective antagonists of orexin-2 receptors, including seltorexant, to sell those compounds 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 accounts for the Agreement as a joint risk-sharing collaboration in accordance with ASC 808, Collaborative Arrangements. Payments between the Company and the licensor with respect to each party’s share of seltorexant 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.  

On July 6, 2016, the Company and Janssen agreed that “Decision Point 2” had been reached as defined under the Agreement. As neither party exercised their right to withdraw from the Agreement, the Company paid Janssen $3.5 million and has incurred direct expenses of $0.3 million related to development activities under the current phase of development. During the three months ended March 31, 2019 and 2018, the Company recorded an expense of zero for certain development activities in accordance with the terms of the Agreement.

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In June 2017, the Company entered into an amendment (“the Amendment”) to the Agreement. The effectiveness of the Amendment was contingent upon approval of its terms by the European Commission and the closing of the acquisition of Actelion Ltd. by affiliates of Janssen. These conditions were subsequently met, and the Amendment became effective on August 29, 2017. Under the Amendment, Janssen has waived its right to royalties on seltorexant insomnia sales in the Minerva Territory. The Company retains all of its rights to seltorexant, including commercialization of the molecule for the treatment of insomnia and as an adjunctive therapy for MDD, which include an exclusive license in the Minerva Territory, with royalties payable by the Company to Janssen on seltorexant sales outside of the insomnia indication. Royalties on sales outside of the Minerva Territory are payable by Janssen to the Company. Janssen made an upfront payment to the Company of $30 million upon the effectiveness of the Amendment and agreed to make a $20 million payment at the start of a Phase 3 insomnia trial for seltorexant and a $20 million payment when 50% of the patients are enrolled in this trial. Janssen further agreed to waive development payments from the Company until completion of the Phase 2b development milestone. This milestone is referred to as “Decision Point 4”. Completion of the current Phase 2b studies is expected to occur in the second half of 2019. The $30 million payment and $11.2 million in previously accrued collaborative expenses, which were forgiven upon the effective date of the Amendment, are earned and recognized as revenue as the services are performed from the commencement of Phase 3 development to the completion of the development activities using the proportional performance method. The $30 million payment along with the $11.2 million in previously accrued collaborative expenses have been included under deferred revenue on the Company’s balance sheet at March 31, 2019 and December 31, 2018. In connection with the Amendment, the Company repurchased all of the approximately 3.9 million shares of its common stock previously owned by Johnson & Johnson Innovation-JJDC Inc. at a per share price of $0.0001, for an aggregate purchase price of approximately $389.

As a result of the Amendment, the Company assumed strategic control of matters relating to the clinical development of seltorexant for insomnia and has no further financial obligations until after Decision Point 4. After Decision Point 4, both the Company and Janssen have the right to opt-out of the Agreement.

If the Company opts-out, it collects a royalty on worldwide sales of seltorexant in the single digits with no further obligations to Janssen. If Janssen opts-out, the Minerva Territory would be expanded to include North America and the Company would pay Janssen single digit royalties on sales of seltorexant outside of the insomnia indication.

If both parties elect to continue past Decision Point 4 into Phase 3, the Company would be obligated to fund the clinical trials related to insomnia, receive up to $40 million in milestone payments from Janssen, and be responsible for 40% of all costs incurred in the Phase 3 MDD program.

The Company determined that the license under the Amendment is not considered to be a separate deliverable as it contains no value without the development activities performed under the Agreement. The participation in the joint steering committee under the Amendment is considered to be not separable from the development activities and therefore the two deliverables are combined into a single unit of account. The Company concluded that the milestone payments are related to future performance obligations and will be recognized as those performance obligations are performed by the Company. Similarly, the Company will recognize royalty revenues in the periods of the sale of the related products, provided that no future performance obligations exist and revenue recognition is limited to amounts for which it is probable that a significant reversal will not occur.

 

NOTE 7 — STOCKHOLDERS’ EQUITY

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 (see Note 5). 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, 2019.

 

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NOTE 8 — STOCK AWARD PLAN AND STOCK-BASED COMPENSATION

In December 2013, the Company adopted the 2013 Equity Incentive Plan (as subsequently amended and restated, the “Plan”), which provides for the issuance of options, stock appreciation rights, stock awards and stock units. On January 1, 2018, in accordance with the terms of the Plan, the total shares authorized for issuance under the plan increased by 750,000 to 6,531,333. This increase represents the lesser 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. In December 2017, the Company issued inducement awards in the form of an option to purchase 775,000 shares of the Company’s common stock with an exercise price of $6.05 per share and a restricted stock unit award to acquire 40,000 shares of the Company’s common stock, to Rick Russell in connection with his appointment as the Company’s President. These inducement awards are outside of, but subject to the terms generally consistent with, the Plan, as a material inducement to Mr. Russell’s acceptance of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). In June 2018, the Company increased the aggregate number of shares of common stock authorized for issuance under the Plan by 2,500,000 shares. Stock option activity for employees and non-employees for the three months ended March 31, 2019 is as follows:

 

 

The weighted average grant-date fair value of stock options outstanding on March 31, 2019 was $5.17 per share. Total unrecognized compensation costs related to non-vested stock options at March 31, 2019 was approximately $21.2 million and is expected to be recognized within future operating results over a weighted-average period of 3.0 years. The total intrinsic value of the options exercised during the three months ended March 31, 2019 was approximately $0.2 million. No options were exercised during the three months ended March 31, 2018.

 

The expected term of the employee-related options was estimated using the “simplified” method as defined by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment. The volatility assumption was determined by examining the historical volatilities for industry peer companies, as the Company did not have sufficient trading history for its common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments 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.

 

The Company uses the Black-Scholes model to estimate the fair value of stock options granted. For stock options granted to employees during the three months ended March 31, 2019 and 2018, the Company utilized the following assumptions:

 

 

 

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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 zero stock options to non-employees and recorded stock-based compensation expense of $0.2 million during the three months ended March 31, 2019. The Company granted 40,000 stock options to non-employees and recorded stock-based compensation expense of $0.2 million during the three months ended March 31, 2018.

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

 

 

 

RSU activity under the Plan for the three months ended March 31, 2019 is as follows:

 

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, 2019 was approximately $1.3 million and is expected to be recognized within future operating results over a period of 1.8 years. The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations:

 

 

 

NOTE 9 — COMMITMENTS AND CONTINGENCIES

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

Refer to Note 10 – Leases, for the Company’s current lease commitments.

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NOTE 10 — LEASES

 

Operating leases

 

On October 2, 2017, the Company entered into an office sublease agreement (the “Sublease”) with Profitect, Inc. (the “Sublandlord”) to sublease approximately 5,923 rentable square feet of office space located at 1601 Trapelo Road, Waltham, MA 02451 (the “Premises”). The term of the Sublease began on November 1, 2017 and will expire on July 31, 2021 (the “Term”), with a monthly rental rate starting at $14,808 and escalating to a maximum monthly rental rate of $16,288 in the final 12 months of the Term. The Sublandlord provided the Premises to the Company free of charge for the first two months of the Term. The Company will recognize the remaining expense on a straight-line basis over the remaining Term.   

 

Throughout the Term, the Company is responsible for paying certain costs and expenses, in addition to the rent, as specified in the
Sublease, including a proportionate share of applicable taxes, operating expenses and utilities. In applying the ASC 842 transition guidance, the Company retained the classification of this Sublease as operating and recorded a lease liability and a right-of-use asset on the ASC 842 effective date.

The following table contains a summary of the Sublease costs recognized under ASC 842 and other information pertaining to the Company’s operating Sublease for the three months ended March 31, 2019:

 

 

Future minimum Sublease payments under the Company’s non-cancelable operating Sublease as of March 31, 2019, are as follows:

 

 

 

NOTE 11 — RELATED PARTY TRANSACTIONS

In January 2016, the Company entered into a services agreement with V-Watch SA (“V-Watch”), for approximately $105 thousand for the use of V-Watch’s SomnoArt device for monitoring sleep in the roluperidone Phase 2b and MIN-117 Phase 2a 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.

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

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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, 2018 as filed with the Securities and Exchange Commission on March 12, 2019.

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 (“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: roluperidone (also known as MIN-101) for the treatment of negative symptoms in patients with schizophrenia; seltorexant (also known as MIN-202 or JNJ-42847922), which we are co-developing with Janssen Pharmaceutica NV (“Janssen”) for the treatment of insomnia disorder and adjunctive treatment of Major Depressive Disorder (“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.

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 Updates

Roluperidone (MIN-101)

Phase 3 Clinical Trial

In December 2017, the first patient was screened in the pivotal Phase 3 clinical trial of roluperidone (Study MIN-101C07) as monotherapy for negative symptoms in patients diagnosed with schizophrenia. The trial is a multicenter, randomized, double-blind, parallel-group, placebo-controlled, 12-week study to evaluate the efficacy and safety of 32 milligrams, or mg, and 64 mg of roluperidone in adult patients with negative symptoms of schizophrenia. The 12-week study will be followed by a 40-week, open-label extension period during which patients on the drug will continue receiving their original dose and patients on placebo will receive either 32 mg or 64 mg of roluperidone.  

The approximately 500 patients we expect to enroll in this trial at clinical sites in the U.S. and Europe will be initially randomized equally to receive one of the two doses of roluperidone or placebo for 12 weeks. Thereafter, all patients will continue treatment with roluperidone for the 40-week extension period if they elect to enter that period.

We expect to complete enrollment in this trial during the second half of 2019, with top line results from the 12-week, double-blind portion of the study to be available in the fourth quarter of 2019.

The primary endpoint of this trial will be improvement in negative symptoms in patients treated with roluperidone compared to placebo as measured by the change in the Positive and Negative Syndrome Scale, or PANSS, Marder negative symptoms factor score (“NSFS”), over the 12-week double-blind treatment period. To support the use of the Marder NSFS as the primary endpoint in the Phase 3 study, it was applied to the Phase 2b PANSS data, and the resulting analysis confirmed the robustness of the effect of roluperidone for the two tested doses. The key secondary endpoint will be the effect of roluperidone compared to placebo as measured by the Personal and Social Performance, or PSP, total score over the same period. Additional secondary endpoints will be the effect of roluperidone compared to placebo on the Clinical Global Impression of Severity (“CGI-S”) score and safety and tolerability.

Patients admitted into the trial must have a documented diagnosis of schizophrenia for at least one year and be symptomatically stable for at least 6 months with moderate to severe negative symptoms (>20 on the PANSS negative symptom subscale) and stable positive symptoms. Patients without moderate to severe symptoms of excitement/hyperactivity, suspiciousness/persecution, hostility, uncooperativeness, or poor impulse control will be recruited. We believe these eligibility criteria represent the real-world patient population who may benefit when the drug is used in clinical practice. In addition, patients treated with psychotropic agents will need to undergo a wash-out period of a few days before receiving study drug. These parameters were applied in screening the population treated in the Phase 2b trial.

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Chemistry, Manufacturing and Controls program

The chemistry, manufacturing and controls (“CMC”) scale-up program for roluperidone is ongoing to ensure consistency between the drug batches to be used during Phase 3 testing and those that will be available for potential marketing and commercialization pending the completion of our Phase 3 trial and subsequent regulatory submission and review of a New Drug Application (“NDA”) for roluperidone. The CMC program requires validation of all aspects of the manufacturing processes required to result in a drug product that consistently meets approved quality standards.

Brain-Derived Neurotrophic Factor Findings

We have completed a pre-clinical study that provides evidence of the effect of roluperidone on Brain-Derived Neurotrophic Factor (“BDNF”) and on Glial Cell-Derived Neurotrophic Factor (“GDNF”). BDNF is the most widely distributed member of neurotrophins in the brain and has been associated with neurogenesis, neuroplasticity, neuroprotection, synapse regulation, learning and memory. Its involvement in schizophrenia has also been described. GDNF is another neurotrophin known to promote the survival of different types of brain cells and has been shown to be essential for the maintenance and survival of dopamine neurons.

 

Data from this study were presented at the 2019 Congress of the Schizophrenia International Research Society on April 11, 2019.  These findings demonstrate that administration of roluperidone significantly increased BDNF release by astrocytes and hippocampal neurons obtained from the cerebral cortex of newborn rats, as well as the release of GDNF (Glial cell derived neurotrophic factor) in cultured astrocytes. Furthermore, data showed that roluperidone enhanced BDNF gene expression at drug concentrations similar to those observed in humans at tested doses.

Based on these results, we believe that the effect of roluperidone on BDNF and GDNF may indicate its potential for disease modification and improved neuroplasticity, in addition to its observed effects on the sigma₂ and serotoninergic 5-HT_2A neurotransmitter pathways.

The Journal of Clinical Psychiatry Publication

The Journal of Clinical Psychiatry has published online results demonstrating cognitive improvements in patients with schizophrenia treated with roluperidone (Cognitive Effects on MIN-101 in Patients with Schizophrenia and Negative Symptoms: Results from a Randomized Controlled Trial). The results also demonstrated that cognitive improvements correlate with previously reported improvements in negative symptoms. This is the third peer-reviewed publication of Phase 2b data with roluperidone.

MIN-117

Phase 2b Trial

We initiated a Phase 2b trial in MDD in the U.S. and Europe on April 9, 2018. The primary objective of the trial is to evaluate the efficacy of two fixed doses of MIN-117, 5.0 mg and 2.5 mg daily, compared with placebo in reducing the symptoms of major depression as measured by the change in the Montgomery-Asberg Depression Rating Scale (“MADRS”) total score over six weeks of treatment. Secondary objectives include: (1) assessment of the change from baseline in symptoms of anxiety using the Hamilton Anxiety Scale (“HAM-A”); (2) the change in severity of illness using the Clinical Global Impression of Severity Scale (“CGI-S”) and Clinical Global Impression of Improvement Scale (“CGI-I”); and (3) safety over six weeks of treatment.

The study is recruiting adults with a diagnosis of moderate or severe MDD with anxious distress and without psychotic features. Based upon previous clinical observations, we believe that patients with MDD who also have symptoms of anxiety may benefit from treatment with MIN-117.

Approximately 324 patients are expected to be enrolled in the U.S. and Europe. Patients will be randomized to one of three arms, including placebo and the two dosage arms, in a 2:1:1 ratio, resulting in approximately 162 patients in the placebo group and 81 patients in each of the two MIN-117 treatment groups. The study design includes a screening phase of up to three weeks, a 6-week double-blind treatment phase and a 2-week post-study follow-up period. We expect to complete enrollment in this trial in the third quarter of 2019, with top line results to be available in the fourth quarter of 2019.

New Patent Application Related to Pain

We have filed a U.S. patent application for MIN-117 to treat pain. Pre-clinical rat models submitted in the patent application included peripheral motoneuropathy, inflammatory pain and chemotherapy-induced peripheral neuropathic pain. Findings in these models showed that MIN-117 restored approximately 60 percent of the nociceptive pain threshold after peripheral motoneuropathy or inflammatory pain and significantly reduced, in a dose-dependent manner, chemotherapy-induced peripheral neuropathic pain.

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These results suggest that MIN-117 may be a candidate for study in the treatment of diseases with chronic pain symptoms and may have the potential to address the urgent need for non-opioid therapeutic options for the treatment of pain. Furthermore, the currently available treatments for chronic pain are often not satisfactory and may be associated with adverse reactions, tolerance, dependence and reductions in the quality of life for patients.

Seltorexant (MIN-202)

Phase 2b Trials in MDD

A Phase 2b trial of seltorexant as adjunctive therapy to antidepressants is ongoing in adult patients with MDD who have responded inadequately to antidepressant therapy (the “2001 Trial”). The primary objectives of this multi-center, double-blind, randomized, parallel group, placebo-controlled, adaptive-dose finding study are to assess the dose-response relationship and antidepressant effects of up to three doses of seltorexant (10, 20, and 40 mg) and to assess the safety and tolerability of seltorexant compared to placebo. The trial consists of three phases: a screening phase lasting up to four weeks, a 6-week double-blind treatment phase and a 2-week post-treatment follow-up phase. We plan to enroll approximately 280 patients in the U.S., Europe, Russia and Japan.

A Phase 2b clinical trial comparing seltorexant versus quetiapine as adjunctive therapy is ongoing in patients with MDD who have responded inadequately to antidepressant therapy (the “2002 Trial”). The primary objective of this multi-center, double-blind, randomized, flexible-dose, parallel-group study is to assess the efficacy of flexibly dosed seltorexant compared to flexibly dosed quetiapine as adjunctive therapy to a baseline antidepressant drug in delaying time to all-cause discontinuation of study drug over a 6-month treatment period. Time to all-cause discontinuation is defined as the number of days from administration of the first dose of study drug to administration of the last dose of study drug.

The trial consists of three phases: a screening phase lasting up to four weeks, a six-month double-blind treatment phase and a 2-week follow-up phase. Approximately 100 patients 18 to 64 years of age are planned to be randomized in the U.S. to receive either flexibly dosed seltorexant, 20 mg or 40 mg, or flexibly dosed quetiapine XR, 150 mg or 300 mg. Subjects will continue to take their baseline antidepressant therapy of either a selective serotonin reuptake inhibitor (“SSRI”) or a serotonin-norepinephrine reuptake inhibitor (“SNRI”) at the same dose throughout the screening, double-blind and follow-up phases.

Enrollment in the 2002 trial was temporarily suspended during the first quarter of 2018 due to a drug packaging issue. This issue has been resolved, and enrollment was restarted in the second quarter of 2018. We have completed pre-clinical fertility studies in female rats to assess the potential relevance to exposing women of child bearing potential to seltorexant and have requested regulatory clearance to lift the ban on enrolling these women.

Enrollment has been completed in the 2001 Trial in MDD and we expect top line results from this trial to be available in the second quarter of 2019. Enrollment has been completed in the 2002 Trial in MDD and we expect top line results from this trial to be available in the third quarter of 2019.

Phase 2b Trial in Insomnia Disorder

A Phase 2b clinical trial of seltorexant is ongoing in patients with insomnia disorder (the “2005 Trial”). This multicenter, double-blind, randomized, parallel-group, active- and placebo-controlled dose finding study is designed to assess the efficacy and safety of seltorexant in both adult and elderly subjects with insomnia disorder. The primary objective of this trial is to assess the dose-response of three doses of seltorexant (5, 10 and 20 mg daily) compared to placebo on sleep onset as measured by the latency to persistent sleep (“LPS”) using polysomnography (“PSG”). The key secondary objective is to assess the dose-response of these three doses compared to placebo on wake after sleep onset (“WASO”) over the first six hours using PSG. In addition, the effects of seltorexant on sleep and cognition will be compared to those effects of zolpidem to determine potential differences between the compounds.

A total of approximately 360 patients 18 to 85 years of age are expected to be randomized in this study at clinical sites in the U.S., European Union, and Japan.

Enrollment in the 2005 Trial in Insomnia has been completed and we expect top line results from this trial to be available in the second quarter of 2019.

MIN-301

Results from a non-human primate study showed 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 pre-clinical 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 pre-clinical studies in preparation for an Investigational New Drug (“IND”) or Investigational Medicinal Product Dossier (“IMPD”) filing, with a Phase 1 study expected to commence thereafter.

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Financial Overview

Revenue. None of our product candidates have been approved for commercialization and we have not recognized any revenue in connection with the sale or license of our product candidates. As a result of the Amendment to our Co-Development and License Agreement with Janssen, we have Deferred Revenue that will be recognized in future periods, the timing of which is subject to certain future events that will be evaluated in conjunction with the relevant revenue recognition pronouncements.

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.

In the future, we expect research and development expenses 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 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, corporate governance and other regulations, investor relations expenses and higher insurance premiums. In addition, 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 (current and non-current).

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, 2019 versus March 31, 2018

Research and Development Expenses

Total research and development expenses were $11.6 million for the three months ended March 31, 2019 compared to $8.4 million for the same period in 2018, an increase of approximately $3.2 million. The increase in research and development expenses primarily reflects higher development expenses for the Phase 3 clinical trial of roluperidone and the Phase 2b clinical trial of MIN-117. We expect research and development expenses to increase during 2019 as we increase patient enrollment and related support activities for the roluperidone and MIN-117 clinical trials.

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General and Administrative Expenses

Total general and administrative expenses were $4.7 million for the three months ended March 31, 2019 compared to $4.3 million for the same period in 2018, an increase of approximately $0.4 million. The increase in general and administrative expenses was primarily due to an increase in non-cash stock-based compensation expenses and salary costs from increased staffing to support our pre-commercial activities. We expect general and administrative expenses to increase during 2019 as we continue to invest in the infrastructure necessary to support our growth.

Foreign Exchange Losses

Foreign exchange losses were $6 thousand for the three months ended March 31, 2019 compared to a loss of $18 thousand for the same period in 2018, a decreased loss of $12 thousand. The loss was primarily due to clinical activities denominated in Euros.

Investment Income

Investment income was $0.5 million for the three months ended March 31, 2019 compared to $0.4 million for the same period in 2018, an increase of $0.1 million. The increase was due to investment income on cash equivalents and marketable securities.

Interest Expense

Interest expense was zero for the three months ended March 31, 2019 compared to $0.1 million for the same period in 2018, a decrease of $0.1 million. The decrease was due to the repayment of principal on our Term A loans in 2018.

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, 2019, we had an accumulated deficit of approximately $230.4 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 March 31, 2019, we had approximately $79.3 million in cash, cash equivalents, marketable securities, and restricted cash. We believe that our existing cash, cash equivalents, restricted cash 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, 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

Amendment to Co-Development and License Agreement with Janssen

On August 29, 2017, the European Commission approved the Amendment to our Co-Development and License Agreement with Janssen under which Janssen made an upfront payment to us of $30 million in August 2017 and agreed to make a $20 million payment at the start of a Phase 3 insomnia trial for seltorexant and a $20 million payment when 50% of the patients are enrolled in this trial. Janssen further agreed to waive the remaining payments due from us until the completion of certain Phase 2b trials, including $11.2 million in previously accrued collaborative expenses. In connection with the Amendment, we also repurchased all of the approximately 3.9 million shares of our stock previously owned by Johnson & Johnson Innovation-JJDC Inc. at a per share price of $0.0001, for an aggregate purchase price of approximately $389.

Public Offering of Common Stock

On July 5, 2017, we closed a public offering of common stock, in which we issued and sold 5,750,000 shares of our common stock, including 750,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, at a public offering price of $7.75, for aggregate gross proceeds to us of $44.6 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 SEC. We incurred $3.0 million in underwriting discounts and commissions and transaction costs, which will be included as a component of additional paid-in capital, resulting in net proceeds of approximately $41.6 million.

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Exercise of Warrants

In March 2017, certain investors in our March 2015 private placement exercised their warrants and received an aggregate of 1,621,073 shares of our common stock. We received gross proceeds of approximately $9.4 million from the exercise of these warrants.

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.

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. 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, marketable securities, 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.

Under our $10.0 million Term A Loan, (See Note 5) we have made principal repayments of approximately $10.0 million and made a final repayment of all outstanding borrowings on August 1, 2018.

Cash Flows

The table below sets 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 $9.6 million during the three months ended March 31, 2019 was primarily due to our net loss of $15.8 million and amortization of investments of $0.2 million, partially offset by stock-based compensation expense of $2.5 million, a $1.9 million increase in accrued expenses, a $1.2 increase in accounts payable and an increase in prepaid expense of $0.8 million.

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Net cash used in operating activities of approximately $10.9 million during the three months ended March 31, 2018 was primarily due to our net loss of $12.4 million, an increase in prepaid expense of $2.9 million and amortization of investments of $0.1 million, partially offset by a $1.4 million increase in accounts payable, stock-based compensation expense of $2.1 million and a $1.0 million increase in accrued expenses.

Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities of approximately $10.5 million during the three months ended March 31, 2019 was primarily due to the purchase of marketable securities of $19.5 million, partially offset by the maturity and redemption of marketable securities of $9.0 million.

Net cash provided by investing activities of approximately $31.3 million during the three months ended March 31, 2018 was primarily due to the maturity and redemption of marketable securities of $39.3 million, partially offset by the purchase of marketable securities of $7.9 million.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities of $0.5 million during the three months ended March 31, 2019 was due to the proceeds from the exercise of common stock options of $0.5 million.

Net cash used in financing activities of $1.3 million during the three months ended March 31, 2018 was due to principal repayments under the Term A loans of $1.3 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, 2018, 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; goodwill; income taxes; Jumpstart Our Business Startups 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, 2019.

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

Not applicable.

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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 March 31, 2019. Based on the evaluation of our disclosure controls and procedures as of March 31, 2019, 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 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

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

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, 2018, as filed with the SEC on March 12, 2019. 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, 2018, 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.

We are not profitable and have incurred losses in each period since our inception in 2007. For the three months ended March 31, 2019, and 2018, we reported net losses of $15.8 million and $12.4 million, respectively. As of March 31, 2019, we had an accumulated deficit of $230.4 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.

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 to develop and commercialize product candidates.

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As of March 31, 2019, we had cash, cash equivalents, marketable securities, and restricted cash of $79.3 million. We believe that our existing cash, cash equivalents, restricted cash and marketable securities 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.

 

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

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the three months ended March 31, 2019.

Issuer Purchases of Equity Securities

We did not repurchase any securities during the three months ended March 31, 2019.

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: May 6, 2019

 

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EXHIBIT 10.1

June 12, 2018

Dear Devin,

This agreement (hereafter "Employment Agreement") will formalize the terms and conditions of your employment with Minerva Neurosciences, Inc. (the "Company").

1.Employment. You will commence employment with the Company on July 19, 2018, (the “Start Date”) and the terms of your employment are set forth in this agreement dated June 12, 2018 (the “Agreement”). The period during which you are actually employed by the Company is referred to as the "Employment Period".

2.Position Duties; Commitment. During the Employment Period, you will be employed by the Company as its Senior Vice President and General Counsel. You will report to the Company's Chief Executive Officer ("CEO") and shall perform such duties consistent with your position as the General Counsel and as may be assigned to you by the CEO and/or the Board of Directors of the Company (the "Board"). You agree to devote substantially all of your working time, attention and energies to the Company and its Affiliates, and while you remain employed, not to engage in any other business activity that is in conflict with your duties and obligations to the Company; provided, however, that, for the avoidance of doubt, you may (i) manage your passive personal investments, (ii) with advance written approval from the Company, serve on industry, trade, civic, charitable or non-profit corporate boards or committees, and (iii) with the advance written approval of the Company, serve on outside for-profit corporate boards or committees. For purposes of this Agreement, the term "Affiliates" means all persons and entities directly or indirectly controlling, controlled by or under common control with the Company, where control may be by management authority or equity interest.

3.Base Salary. During the Employment Period, your current annualized base salary ("Base Salary") is US $350,000 payable in accordance with the Company's normal payroll practice. Your Base Salary will be subject to review and adjustment by the Company from time to time.

4.Signing Bonus. You shall be eligible to earn a signing bonus in the amount of $50,000, (the “Signing Bonus”), which will be earned over the twelve (12) month period following the Start Date. The Signing Bonus will be paid on the next regularly first payroll date to occur at least sixty (60) days after the Start Date. If you resign without Good Reason (as defined below), or are terminated for Cause (as defined below) before the first-year anniversary of the Start Date, you shall be obligated to, and hereby agree to, repay a prorated portion of the Signing Bonus previously advanced, based on the number of days you were employed by the Company prior to such resignation or termination. You agree that if you are obligated to repay all or a portion of the Signing Bonus under this Section 4, the Company may deduct, in accordance with applicable law, any such amount from any payments the Company owes to you, including but not limited to any regular payroll amount and any expense payments. You further agree to pay to the Company, within thirty (30) days of the effective resignation and/or termination date, any remaining unpaid balance of the unearned Signing Bonus not covered by such deductions.

5.Annual Bonus. For each calendar year that ends during the Employment Period you will be eligible to receive a target annual bonus ("Annual Bonus") of 40% of the Base Salary paid in such calendar year. In 2018, your Annual Bonus will be pro-rated for the portion of the year that you have been employed by the Company. Whether to grant a bonus, and in what amount, are determinations to be made in the discretion of the Company based on a variety of factors including, but not limited to, achievement of objectives established by the Board (and/or the Compensation Committee thereof (the “Compensation Committee”) for the Company and specific annual objectives for your position set by the Board, the Compensation Committee and/or the CEO. Since one of the objectives of the Annual Bonus is employee retention, in order to remain eligible and receive any Annual Bonus, you must be employed through the end of the calendar year and still be employed by the Company at the time it makes bonus payments to employees for that year -- generally during the first quarter of the following year.

 

 

 

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6.Equity Awards. Any stock, stock options, restricted stock units or other equity awards that you have previously been granted by the Company (including but not limited to any stock options granted under the Company’s 2013 Amended and Restated Equity Incentive Plan) shall continue to be governed in all respects by the terms of their applicable grant agreements, grant notices and plan documents. The Company, in its sole discretion, may award you equity grants pursuant to the Company’s equity incentive plans from time to time in its sole discretion. Subject to approval of the Board of Directors, on the first business day of the month immediately following the beginning of the Employment Period (the “Commencement Date”) you will be granted an option (the “Option”) to purchase 200,000 shares of common stock of the Company, with an exercise price equal to the fair market value of the common stock on the Commencement Date. Provided you are employed by the Company on each such date, 25% of the shares subject to the Option will vest on the first anniversary of the Commencement Date and the remaining 75% of the shares subject to the option will vest ratably at the end of each quarter over the three (3) year period thereafter. The Option will be evidenced by a standard stock option agreement, and will be subject to the terms and conditions of that agreement and the Company’s 2013 Amended and Restated Equity Incentive Plan.

7.Benefits.

(a)You shall be eligible to participate in any and all benefit programs that the Company establishes and makes available to similarly situated employees from time to time, provided that you are eligible under (and subject to all provisions of) the plan documents governing those programs. Such benefits may include participation in group medical, dental, and vision insurance programs, and term life insurance. The benefits made available by the Company, and the rules, terms, and conditions for participation in such benefit plans, may be changed by the Company at any time without advance notice.

(b)During the Employment Period, the Company shall reimburse or otherwise provide for payment for reasonable out-of-pocket business expenses incurred by you in furtherance of or in connection with the legitimate business of the Company, subject to such reasonable documentation or policy requirements established by the Company from time to time.

(c)During the Employment Period, in addition to holidays recognized by the Company, you will be entitled to accrue on a pro-rated basis four (4) weeks of paid vacation annually. Pursuant to Company policy, vacation time cannot be carried over from year to year.

8.Termination of Employment.

(a)Death. Your employment will terminate upon your death. Your beneficiaries and/or estate will be entitled to (i) any earned but unpaid Base Salary through the date of your death, to be paid less applicable taxes and withholdings within 10 days of your termination of employment, (ii) compensation at the rate of your Base Salary for any vacation time earned but not used as of the date your employment terminates, (iii) reimbursement for any business expenses incurred by you but not yet paid to you as of the date your employment terminates, provided all expenses and supporting documentation required are submitted within sixty (60) days of the date your employment terminates, and provided further that such expenses are reimbursable under Company policy, (iv) payment of a pro-rata portion of your Annual Bonus (assuming for purposes of this payment that your Annual Bonus would be equal to 40% of your Base Salary), and (v) any amounts accrued and payable under the terms of any of the Company's benefit plans (items (i), (ii), (iii) and (v) referred to as the "Accrued Obligations").

(b)Disability. The Board may terminate your employment by reason of your Disability upon written notice of termination. "Disability" means that you have been unable to perform your essential job functions by reason of a physical or mental impairment, notwithstanding the provision of any reasonable accommodation, for a period of 180 days within a period of 365 consecutive days. Upon such termination, you will be entitled only to the Accrued Obligations.

 

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(c)Termination by the Company for Cause. The Board may terminate your employment for Cause. "Cause" means that you have (i) been convicted of (x) felony, or (y) a misdemeanor involving moral turpitude (other than a minor traffic violation), (ii) committed an act of fraud or embezzlement against the Company or its Affiliates, (iii) materially breached this Employment Agreement and failed to cure such breach within thirty (30) days following written notice from the Company, (iv) materially violated any written policy of the Company and failed to cure such violation within thirty (30) days following written notice from the Company, (v) materially failed or materially refused to substantially perform your duties (other than by reason of a physical or mental impairment) or to implement the lawful written directives of the CEO and/or Board that are consistent with your position, and such material failure or material refusal has continued after thirty (30) days following written notice from the Company, (vi) willfully engaged in conduct or willfully omitted to take any action, resulting in material injury to the Company or its Affiliates, monetarily or otherwise (including with respect to the Company's ability to comply with its legal or regulatory obligations), or (vii) materially breached your fiduciary duties as an officer or director of the Company. Upon such termination, you will be entitled only to the Accrued Obligations.

(d)Termination by the Company without Cause. The Company may terminate your employment without "Cause" immediately upon written notice. If such termination is without Cause and not by reason of your Disability, then, in addition to the Accrued Obligations, and in lieu of any other severance benefits otherwise payable under any Company policy or plan in effect, subject to compliance with the conditions set forth in Section 8(h), you will be entitled to (i) continued payment of your Base Salary for nine (9) months (the “Salary Severance Period”), (ii) should you be eligible for and timely elect COBRA coverage, payment of your COBRA premiums, less the amount charged to active employees for health coverage, for up to nine (9) months (the “COBRA Severance Period" (iii) payment of a pro-rata portion of your Annual Bonus (assuming for purposes of this payment that your Annual Bonus is equal to 35% of your Base Salary) and (iv) immediate vesting of any unvested options, restricted stock, restricted stock units, or other equity awards that are outstanding immediately prior to the date of termination and, but for the termination of your employment, would have vested during the nine (9) month period immediately following the date of termination (collectively, the "Severance Benefits").

(e)Termination Without Cause or for Good Reason Following a Change in Control.

(i)If your employment by the Company is terminated  by  the  Company  (or  its successor or parent) without Cause (and not due to Disability or death) or by you for Good Reason within twelve (12) months immediately following a Change in Control (as defined below), then the Company shall pay or provide you with the Accrued Obligations and all of the benefits described in Section 8(d) above, subject to compliance with the conditions set forth in Section 8(h); provided that: (x) the Salary Severance Period defined in Section 8(d)(i) shall be increased to a total of twelve (12) months following the termination date; (y) the COBRA Severance Period defined in Section 8(d)(ii) shall be increased to a total of twelve (12) months following the termination date; (z) in lieu of the pro-rata bonus described in Section 8(d)(iii), the Company shall pay you the full Annual Bonus for the performance year in which your termination occurs, payable as a lump sum payment on the Company’s first ordinary payroll date occurring on or after the Release of Claims effective date (namely, the date it can no longer be revoked); and (xx) in lieu of the vesting acceleration described in Section 8(d)(iv), all outstanding unvested equity awards granted to you shall vest pursuant to Section 6 of the Stock Option Agreement (collectively, the “Change In Control Severance Benefits”).

 

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(ii)For purposes of this Agreement, a “Change in Control” shall mean a change in ownership or control of the Company effected through any of the following means: (a) a merger, consolidation or other reorganization approved by the Company’s stockholders, unless securities representing at least fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction, (b) a sale, transfer or other disposition of all or substantially all of the Company’s assets, or (c) the closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a “group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Company or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control with, the Company) becomes directly or indirectly (whether as a result of a single acquisition or by reason of one or more acquisitions within the twelve (12)-month period ending with the most recent acquisition) the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or convertible into or exercisable for securities possessing) more than fifty percent (50%) of the total combined voting power of the Company’s securities (as measured in terms of the power to vote with respect to the election of Board members) outstanding immediately after the consummation of such transaction or series of related transactions, whether such transaction involves a direct issuance from the Company or the acquisition of outstanding securities held by one or more of the Company’s existing stockholders; or (d) a change in the composition of the Board over a period of twelve (12) consecutive months or less such that a majority of the Board members ceases to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period (“Incumbent Directors”) or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Incumbent Directors who were still in office at the time the Board approved such election or nomination; provided that any individual who becomes a Board member subsequent to the beginning of such period and whose election or nomination was approved by two-thirds of the Board members then comprising the Incumbent Directors will be considered an Incumbent Director.

In the event of any interpretation of this definition, the Board of Directors of the Company, upon advice of legal counsel, shall have final and conclusive authority, so long as such authority is exercised in good faith. Notwithstanding the foregoing, a Change in Control will only be deemed to occur for purposes of this Agreement if it also meets the definition used for purposes of Treasury Regulation Section 1.409A-3(a)(5), that is, as defined under Treasury Regulation Section 1.409A-3(i)(5).

(f)Termination by You Without Good Reason. You may terminate your employment for any or no reason subject to your providing 30 days written notice to the Company. The Company shall have the right to elect to terminate your employment immediately or at any other date during the notice period. Upon such termination, you will be entitled only to the Accrued Obligations.

(g)Termination by You For Good Reason. You may terminate your employment for Good Reason by providing written notice to the Company of the condition giving rise to the Good Reason no later than ninety (90) days following the first occurrence of the condition, by giving the Company thirty (30) days to remedy the condition and by terminating your employment for Good Reason within ninety (90) days thereafter if the Company fails to remedy the condition. For purposes of this Agreement, "Good Reason" shall mean, without your written consent, the occurrence of any one or more of the following events: (i) material diminution in the nature or scope of the your responsibilities, duties or authority; (ii) material reduction in your Base Salary; (iii) relocation of your principal work location more than fifty (50) miles from the location of your principal work location as of immediately prior to such relocation; or (iv) material breach of this Agreement by the Company. In the event you terminate your employment for Good Reason, in addition to the Accrued Obligations, and in lieu of any other severance benefits otherwise payable under any Company policy, you will be entitled to the Severance Benefits, in accordance with and subject to the provisions of Section 8(d).

 

 

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(h)Conditions. Any payments or benefits made or provided pursuant to Section 8 (other than Accrued Obligations) shall be conditional upon (i) your continuing compliance with the restrictive covenants contained in Section 9, (ii) your continuing material compliance with the provisions of Sections 10 and 11, and (iii) your execution of a release of claims relating to your employment in a form prepared by and satisfactory to the Company (the "Release of Claims"). You must execute the Release of Claims and the Release of Claims must become effective within forty-five (45) days following the date of the termination of your employment (which release shall be delivered to you within five (5) days following the date of such termination). The first payment of continued Base Salary and COBRA premiums, together with the pro-rata Annual Bonus payable pursuant to subsection 8(d)(iii) above, pursuant to Section 8(d) shall be made on the first regular payroll date of the Company following the effective date of the Release of Claims as set forth in Section 8(d); provided, however, that if such 45-day period covers two of your taxable years, payment of Severance Benefits or Change In Control Severance Benefits will begin in the later taxable year.

9.Restrictive Covenants.

(a)Non-Competition. During your Employment Period and ending on the twelve (12) month anniversary following the termination of your employment for any reason (the "Restricted Period"), you will not (except as an officer, director, stockholder, member, manager, employee, agent or consultant of the Company or its subsidiaries) directly or indirectly, own, manage, operate, join, or have a financial interest in, control or participate in the ownership, management, operation or control of, or be employed as an employee, agent or consultant, or in any other individual or representative capacity whatsoever, or use or permit your name to be used in connection with, any business anywhere in the world which is primarily engaged in the business of research, development and commercialization of drugs to treat (i) psychiatric disorders, sleep disorders or Parkinson's disease or (ii) any other indication for which the Company is clinically developing or commercializing a drug at the time of termination of your employment (the "Restricted Business"). These restrictions shall not prevent you from (y) accepting employment with a recognized pharmaceutical company that is not primarily engaged in a Restricted Business, provided that your services for any such entity do not primarily relate to any Restricted Business in which such entity may be engaged and/or (z) holding five percent (5%) of the securities of any publicly traded entity.

(b)Non-Solicitation of Employees. During the Restricted Period, you agree not to, directly or indirectly, whether for your own account or for the account of any other individual or entity, (i) solicit for hire or engagement, hire, or engage any individual who is employed by the Company or its Affiliates on the date of any attempted solicitation or was employed during the six month period prior thereto unless such individual had been involuntarily terminated by the Company or (ii) otherwise induce or attempt to induce any individual who is employed by Company or its Affiliates to terminate such employment.

(c)Trade Secrets and Confidential information. You recognize that it is in the legitimate business interest of the Company and its Affiliates to restrict your disclosure or use of Trade Secrets or other Confidential Information relating to the Company and its Affiliates for any purpose other than in connection with your performance of your duties to the Company and its Affiliates, and to limit any potential appropriation of such Trade Secrets or other Confidential Information. You therefore agree that all Trade Secrets or other Confidential Information relating to the Company and its Affiliates heretofore or in the future obtained by you shall be considered confidential and the proprietary information of the Company and its Affiliates. Except as required in connection with the performance of your duties, you shall not use or disclose, or authorize any other person or entity to use or disclose, any Trade Secrets or other Confidential. Information. The term "Trade Secrets or other Confidential information," means any information of the Company or its Affiliates that is not generally known by those with whom they compete and includes, by way of example and without limitation, in whatever medium, the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, machine, invention, improvement, manufacturing, sales or test data, business or financial information which are non-public in nature and which are treated as confidential or trade secret information by the Company. The term "Trade Secrets or other Confidential Information" does not include information that enters the public domain, other than through your breach of your obligations under this Agreement.

(d)Third Party Information. You understand, in addition, that the Company has received and in the future will receive confidential and/or proprietary knowledge, data, or information from third parties (“Third Party Information”). During your employment and thereafter, you will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with your work for the Company, Third Party Information unless expressly authorized by an authorized officer of the Company in writing.

 

 

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(e)No Improper Use of Information of Prior Employers and Others. During your employment by the Company you will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom you have an obligation of confidentiality, and you will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom you have an obligation of confidentiality unless consented to in writing by that former employer or person.

(f)Discoveries and Works. All Discoveries and Works made or conceived by you, during the Employment Period, jointly or with others, that relate to the present or anticipated activities of the Company or its Affiliates, or are used by the Company or any Affiliate shall be owned by the Company or any Affiliate. The term "Discoveries and Works" means Trade Secrets or other Confidential Information, patents and patent applications, trademarks and trademark registrations and applications, service marks and service mark registrations and applications, trade names, copyrights and copyright registrations and applications, inventions, developments and discoveries. You shall (a) promptly notify, make full disclosure to, and execute and deliver any documents, including any assignment agreement, requested by the Company or any Affiliate, as the case may be, to evidence or better assure title to Discoveries and Works in the Company or any subsidiary, as so requested, (b) renounce any and all claims, including but not limited to claims of ownership and royalty, with respect to all Discoveries and Works and all other property owned or licensed by the Company or any of its Affiliates, (c) assist the Company or any of its Affiliates in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection or other protection of any and all Discoveries and Works, and (d) promptly execute, whether during the Employment Period or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Company or any Affiliate and to protect the title of the Company or any Affiliate thereto, including but not limited to assignments of such patents and other rights to Discoveries and Works. In the event the Company is unable for any reason, after reasonable effort, to secure your signature on any document needed in connection with the actions specified in the preceding paragraph, you hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as your agent and attorney in fact, which appointment is coupled with an interest, to act for and in your behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by you. You acknowledge that all Discoveries and Works shall be deemed "works made for hire" under the Copyright Act of 1976, as amended, 17 U.S.C. § 101.

(g)Disclosure Pursuant to 18 U.S.C. Section 1833(b). Notwithstanding the foregoing, pursuant to 18 U.S.C. Section 1833(b), you shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that: (1) is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

(h)Remedies. You agree that the Company and its Affiliates' remedies at law for any breach or threatened breach by you of any of the provisions of this Section 9 will be inadequate, and that, in addition to any other remedy to which the Company and its Affiliates may be entitled at law or in equity, the Company shall be entitled to a temporary or permanent injunction or injunctions or temporary restraining order or orders to prevent breaches of the provisions of this Section 9 and to enforce specifically the terms and provisions hereof', in each case without the need to post any security or bond. Nothing herein contained shall be construed as prohibiting the Company or its Affiliates from pursuing, in addition, any other remedies available to the Company or any Affiliate for such breach or threatened breach.

 

 

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(i)Enforceability. It is expressly understood and agreed that the parties consider the restrictions contained in this Section 9 hereof to be reasonable for the purpose of preserving the goodwill, proprietary rights and going concern value of the Company and its Affiliates. You agree that you have read this entire Agreement and understand it. You agree that this Agreement does not prevent you from earning a living or pursuing your career and that you have the ability to secure other non-competitive employment using your marketable skills. You agree that the restrictions contained in this Agreement are reasonable, proper, and necessitated by the Company’s legitimate business interests, including without limitation, the Company’s Trade Secrets or other Confidential Information and the goodwill of its customers. You represent and agree that you are entering into this Agreement freely and with knowledge of its contents with the intent to be bound by the Agreement and the restrictions contained in it. if a final, determination is made by an arbitrator or court, as the case may be, having jurisdiction that the time or territory or any other restriction contained in this Section 9 is an unenforceable restriction on your activities, the provisions of this Section 9 shall not necessarily be rendered void but shall be deemed amended to apply as to such maximum time, if any and territory, if any and to such other extent, if any, as such arbitrator or court, as the case may be, may determine to be reasonable such that the Agreement, as modified, provides the Company with the maximum protection of its business interests allowed by law and you agree to be bound by the Agreement as modified. Alternatively, if the arbitrator or court, as the case may be, referred to above finds that any restriction contained in this Section 9 or any remedy provided herein is unenforceable, and such restriction or remedy cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained therein or the availability of any other remedy.

10.Return of Company Property. Upon termination of your employment or upon Company’s request at any other time, you will deliver to Company all of Company’s property, equipment, and documents, together with all copies thereof, and any other material containing or disclosing any Discoveries and Works, Third Party Information or Trade Secrets or other Confidential Information and certify in writing that you have fully complied with the foregoing obligation. You agree that you will not copy, delete, or alter any information contained upon your Company computer or Company equipment before you return it to Company. In addition, if you have used any personal computer, server, or e-mail system to receive, store, review, prepare or transmit any Company information, including but not limited to, Trade Secrets or other Confidential Information, you agree to provide the Company with a computer-useable copy of all such Trade Secrets or other Confidential Information and then permanently delete and expunge such Trade Secrets or other Confidential Information from those systems; and you agree to provide the Company access to your system as reasonably requested to verify that the necessary copying and/or deletion is completed. You further agree that any property situated on Company’s premises and owned by Company is subject to inspection by Company’s personnel at any time with or without notice. Prior to the termination of your employment or promptly after termination of your employment, you will cooperate with Company in attending an exit interview and certify in writing that you have complied with the requirements of this section.

11.Future Cooperation. You agree that upon the Company's reasonable request following your termination of employment, you will use reasonable efforts to assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its Affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its Affiliates, including any proceeding before any arbitral, administrative, regulatory, self- regulatory, judicial, legislative, or other body or agency. You will be entitled only to reimbursement for reasonable out-of-pocket expenses (including travel expenses) incurred in connection with providing such assistance.

12.Publication of Agreement to Future Employers. If you are offered employment or the opportunity to enter into any business venture as owner, partner, consultant or other capacity while the restrictions described in Section 9 of this Agreement are in effect you agree to inform your potential employer, partner, co-owner and/or others involved in managing the business with which you have an opportunity to be associated of your obligations under this Agreement and also agree to provide such person or persons with a copy of this Agreement. You agree to inform the Company of all employment and business ventures which you enter into while the restrictions described in Section 9 of this Agreement are in effect and you also authorize the Company to provide copies of this Agreement to your employer, partner, co-owner and/or others involved in managing the business with which you are employed or associated and to make such persons aware of your obligations under this Agreement.

13.Withholding. The Company shall have the right to withhold from any amount payable to you hereunder an amount necessary in order for the Company to satisfy any withholding tax obligation it may have under applicable law.

 

 

 

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14.Governing Law; Consent to Personal Jurisdiction. The terms of this Employment Agreement, and any action arising hereunder, shall be governed by and construed in accordance with the domestic laws of the Commonwealth of Massachusetts giving effect to any choice of law or conflict of law provision or rule (whether of the Commonwealth of Massachusetts or other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Massachusetts. To the extent that any dispute involving this Employment Agreement is not subject to arbitration pursuant to Section 17 below, you hereby expressly consent to the personal jurisdiction and venue of the state and federal courts located in the Commonwealth of Massachusetts for any lawsuit filed there against me by Company arising from or related to this Agreement.

15.Waiver. This Employment Agreement may not be released, changed or modified in any manner, except by an instrument in writing signed by you and the Board. The failure of either party to enforce any of the provisions of this Employment Agreement shall in no way be construed to be a waiver of any such provision. No waiver of any breach of this Employment Agreement shall be held to be a waiver of any other or subsequent breach.

16.Assignment. This Employment Agreement is personal to you. You shall not assign this Employment Agreement or any of your rights and/or obligations under this Employment Agreement to any other person. The Company may, without your consent, assign this Employment Agreement to a successor to all or substantially all of its stock or assets, provided that the assignee or any successor remains bound by these terms.

17.Dispute Resolution. To benefit mutually from the time and cost savings of arbitration over the delay and expense of the use of the federal and state court systems, all disputes involving this Employment Agreement (except, at the election of either party, for injunctive or declaratory relief with respect to disputes arising out of an alleged breach or threatened breach of the restrictive covenants contained in Section 9), including claims of violations of federal or state discrimination statutes, wage and hour laws, or public policy, shall be resolved pursuant to binding arbitration in the Commonwealth of Massachusetts. In the event of a dispute, a written request for arbitration shall be submitted to the Boston office of JAMS, Inc. (“JAMS”) or its successor, under JAMS’ then applicable rules and procedures for employment disputes. The award of the arbitrators shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Except as otherwise provided above, this procedure shall be the exclusive means of settling any disputes that may arise under this Employment Agreement. All fees and expenses of the arbitrators and all other expenses of the arbitration, except for attorneys' fees and witness expenses, shall be allocated as determined by the arbitrators. Each party shall bear its own witness expenses and attorneys' fees, except as otherwise determined by the arbitrators.

18.Jointly Drafted Agreement. This Employment Agreement is and shall be deemed jointly drafted and written by the parties and shall not be construed or interpreted against any party originating or preparing any part of it because of its authorship.

19.No Conflicts. You represent and warrant to the Company that your acceptance of employment and the performance of your duties for the Company will not conflict with or result in a violation or breach of, or constitute a default under any contract, agreement or understanding to which you are or were a party or of which you are aware and that there are no restrictions, covenants, agreements or limitations on your right or ability to enter into and perform the terms of this Employment Agreement. You further represent and warrant that you have no knowledge of any fact or circumstance that could prevent or materially delay you or the Company (as a result of your employment hereunder) from obtaining or maintaining any registration, license or other authorization or approval required for (i) you to perform your duties hereunder or (ii) the Company to operate its business as currently contemplated.

20.Company Policies and Procedures. As an employee of the Company, you will be required to comply with all Company policies and procedures. The Company's premises, including all workspaces, furniture, documents, and other tangible materials, and all information technology resources of the Company (including computers, data and other electronic files, and all internet and email) are subject to oversight and inspection by the Company at any time, with or without notice. Company employees should have no expectation of privacy with regard to any Company premises, materials, resources, or information.

 

 

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21.Notices. All notices and other communications provided for in this Employment Agreement shall be in writing, shall be given to the respective addresses or telecopy numbers set forth in clauses (a) and (b) of this Section 21.

(a)Each notice or other communication to the Company under this Employment Agreement   shall be directed as follows or to such other address as Company may have furnished to you in writing in accordance herewith:

Minerva Neurosciences, Inc. 1601 Trapelo Road, Suite 286

Waltham, MA 02451

Attn: Chief Executive Officer

Email: rluthringer@minervaneurosciences.com With a required copy to:

Cooley LLP

500 Boylston Street, 14th Floor Boston, MA 02116-3736

Attn: Marc Recht

E-mail: mrecht@cooley.com

(b)Each notice or other communication to you under this Employment Agreement shall be directed to your home address on file with the Company or to such other address as you may have furnished to the Company in writing in accordance herewith.

22.Entire Agreement. Upon the date hereof, this Employment Agreement supersedes all previous and contemporaneous communications, agreements and understandings between you, on the one hand, and the Company or any of its Affiliates, on the other hand, including the Offer Letter, and constitutes the sole and entire agreement between you and the Company pertaining to the subject matter hereof.

23.Counterparts. This Employment Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each party and delivered to the other party.

24.Parachute Payments.

(a)If any payment or benefit you would receive from the Company or otherwise in connection with a change in control of the Company or other similar transaction (a “280G Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then any such 280G Payment (a “Payment”) shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount (i.e., the amount determined by clause (x) or by clause (y)), after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in a Payment is required pursuant to the preceding sentence and the Reduced Amount is determined pursuant to clause (x) of the preceding sentence, the reduction shall occur in the manner (the “Reduction Method”) that results in the greatest economic benefit for you. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata (the “Pro Rata Reduction Method”).

(b)Notwithstanding the foregoing, if the Reduction Method or the Pro Rata Reduction Method would result in any portion of the Payment being subject to taxes pursuant to Section 409A of the Code that would not otherwise be subject to taxes pursuant to Section 409A of the Code, then the Reduction Method and/or the Pro Rata Reduction Method, as the case may be, shall be modified so as to avoid the imposition of taxes pursuant to Section 409A of the Code as follows: (A) as a first priority, the modification shall preserve to the greatest extent possible, the greatest economic benefit for you as determined on an after-tax basis; (B) as a second priority, Payments that are contingent on future events (e.g., being terminated without cause), shall be reduced (or eliminated) before Payments that are not contingent on future events; and (C) as a third priority, Payments that are “deferred compensation” within the meaning of Section 409A of the Code shall be reduced (or eliminated) before Payments that are not deferred compensation within the meaning of Section 409A of the Code.

 

 

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(c)Unless you and the Company agree on an alternative accounting firm, the accounting firm engaged by the Company for general tax compliance purposes as of the day prior to the effective date of the change of control transaction triggering the Payment shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the change of control transaction, the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The Company shall use commercially reasonable efforts to cause the accounting firm engaged to make the determinations hereunder to provide its calculations, together with detailed supporting documentation, to you and the Company within 15 calendar days after the date on which your right to a 280G Payment becomes reasonably likely to occur (if requested at that time by you or the Company) or such other time as requested by you or the Company.

(d)If you receive a Payment for which the Reduced Amount  was  determined  pursuant  to clause (x) of the first paragraph of this Section and the Internal Revenue Service determines thereafter that some portion of the Payment is subject to the Excise Tax, you shall promptly return to the Company a sufficient amount of the Payment (after reduction pursuant to clause (x) of the first paragraph of this Section so that no portion of the remaining Payment is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount was determined pursuant to clause (y) in the first paragraph of this Section, you shall have no obligation to return any portion of the Payment pursuant to the preceding sentence.

25.409A Matters.

(a)Notwithstanding any provision of this Employment Agreement to the contrary, all payments and benefits pair of provided for under this Employment Agreement are intended to comply with or be exempt from the requirements of Section 409A of the Code. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to comply with or be exempt from (as applicable) Section 409A of the Code and the regulations and guidance thereunder. For purposes of this Agreement, all references to "termination of employment" and correlative phrases shall be construed to require a "separation from service" (as defined in Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions contained therein). Further, each payment of compensation under this Employment Agreement (including each installment of the Severance Benefits) shall be treated as a separate payment of compensation. Any amounts payable solely on account of an involuntary separation from service within the meaning of Section 409A of the Code shall be excludible from the requirements of Section 409A of the Code, either as involuntary separation pay or as short-term deferral amounts to the maximum possible extent. Any reimbursements or in-kind benefits provided under this Employment Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the period of time specified in this Employment Agreement, (ii) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit. The welfare benefit continuation provided during the period of time in which you would be entitled to continuation coverage under the Company's group health plan under COBRA is intended to qualify for the exception from deferred compensation as a medical benefit provided in accordance with the requirements of Treasury Regulation Section I .409A-1(b)(9)(v)(B).

 

 

 

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(b)Notwithstanding any provision of the Employment Agreement to the contrary, if you are a "specified employee" within the meaning of Section 409A of the Code at the time of termination of employment, to the extent necessary to comply with Section 409A of the Code, any payment required under this Employment Agreement shall be delayed for a period of six (6) months after termination of employment pursuant to Section 409A of the Code, regardless of the circumstances giving rise to or the basis for such payment. Payment of such delayed amount shall be paid in a lump sum on the day immediately following the end of the six (6) month period. If you die during the postponement period prior to the payment of the delayed amount, the amounts delayed on account of Section 409A of the Code shall he paid to the personal representative of your estate within ninety (90) days after the date of your death. For these purposes, a "specified employee" shall mean an employee who, at any time during the 12-month period ending on the identification date, is a "specified employee" under Section 409A of the Code, as determined by the Company. The determination of "specified employees," including the number and identity of persons considered "specified employees" and the identification date, shall be made by the Company in accordance with Treasury regulation Section 1.409A-1(i).

 

 

AGREED TO AND ACCEPTED ON THIS 12 DAY OF JUNE, 2018.

 

 

 

1601 Trapelo Road, Suite 284   |   Waltham, MA 02451   |   T 617.600.7373

minervaneurosciences.com | info@minervaneurosciences.com

 

 

EXHIBIT 31.1

CERTIFICATION

I, Remy Luthringer, certify that:

 

 

 

 

 

EXHIBIT 31.2

CERTIFICATION

I, Geoffrey Race, certify that:

 

 

 

 

EXHIBIT 32.1

STATEMENT PURSUANT TO 18 U.S.C. § 1350

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Remy Luthringer, President and Chief Executive Officer (Principal Executive Officer) of Minerva Neurosciences, Inc. (the “Company”) and Geoffrey Race, Chief Financial Officer (Principal Financial Officer) of the Company, each hereby certifies that, to the best of his knowledge:

 

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not incorporated by reference into any filing of Minerva Neurosciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.