Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


 

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2019

 

OR

 

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

 

For the transition period from                                    to

 

Commission File Number: 001-38410


BioXcel Therapeutics, Inc.

(Exact name of registrant as specified in its Charter)


 

 

 

 

Delaware

82‑1386754

(State or other jurisdiction of
incorporation or organization)

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

 

 

555 Long Wharf Drive

 

New Haven,  CT

06511

(Address of principal executive offices)

(Zip Code)

 

(475) 238‑6837

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

 

 

 

 

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock,
$0.001 par value per share

 

BTAI

 

Nasdaq Capital Market

 

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

 

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

 

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

 

Large accelerated filer ☐

Accelerated filer ☐

 

 

Non-accelerated filer ☒

Smaller reporting company ☒

 

 

 

Emerging growth company ☒

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

 

 

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at November 8, 2019 was 18,035,025. 

 

 

 

 

Table of Contents

Table of Contents

 

 

 

 

 

Page

PART I - FINANCIAL INFORMATION

 

 

Forward Looking Statements

3

Item 1. 

Financial Statements (Unaudited)

5

 

Balance Sheets as of September 30, 2019 and December 31, 2018

5

 

Statements of Operations for the three and nine months ended September 30, 2019 and 2018

6

 

Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018

7

 

Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

8

 

Notes to Financial Statements

9

Item 2. 

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

20

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4. 

Controls and Procedures

30

 

 

 

PART II OTHER INFORMATION 

 

Item 1. 

Legal Proceedings

31

Item 1A. 

Risk Factors

31

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3. 

Defaults Upon Senior Securities

70

Item 4. 

Mine Safety Disclosures

70

Item 5. 

Other Information

70

Item 6. 

Exhibits

71

Signatures 

72

 

 

2

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this “Quarterly Report,” contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

·

our plans relating to clinical trials for BXCL501, BXCL701 and our other product candidates;

·

our plans for 505(b)(2) regulatory path approval;

·

our plans to research, develop and commercialize our current and future product candidates;

·

our plans to seek to enter into collaborations for the development and commercialization of certain product candidates;

·

the potential benefits of any future collaboration;

·

the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

·

the rate and degree of market acceptance and clinical utility of any products for which we receive marketing approval;

·

our commercialization, marketing and manufacturing capabilities and strategy;

·

our intellectual property position and strategy;

·

our estimates regarding expenses, future revenue, capital requirements and need for additional financing;

·

developments relating to our competitors and our industry;

·

the impact of government laws and regulations; and

·

risks associated with our relationship with BioXcel Corporation (“BioXcel” or “Parent”).

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and 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, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

3

Table of Contents

This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms “we,” “our,” “us,” the “Company” or “BTI” refer to BioXcel Therapeutics, Inc. and its subsidiaries, and “BioXcel” or “Parent” refer to BioXcel Corporation, the Company’s parent.

 

4

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

BIOXCEL THERAPEUTICS, INC.

BALANCE SHEETS

(amounts in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

September 30,

 

December 31, 

 

    

2019

    

2018

 

 

(unaudited)

 

 

ASSETS

 

 

  

 

 

  

Current assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

40,252

 

$

42,565

Prepaid expenses and other current assets

 

 

1,109

 

 

491

Due from Parent

 

 

 —

 

 

115

Total current assets

 

 

41,361

 

 

43,171

Property and equipment, net

 

 

1,086

 

 

327

Operating lease right-of-use asset

 

 

1,199

 

 

 —

Other assets

 

 

51

 

 

51

Total assets

 

$

43,697

 

$

43,549

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

Accounts payable

 

$

4,238

 

$

1,604

Accrued expenses

 

 

3,387

 

 

3,056

Due to Parent

 

 

59

 

 

 —

Other current liabilities

 

 

522

 

 

 —

Total current liabilities

 

 

8,206

 

 

4,660

 

 

 

 

 

 

 

Operating lease liability

 

 

1,071

 

 

 —

 

 

 

 

 

 

 

    Total liabilities

 

 

9,277

 

 

4,660

 

 

 

 

 

 

 

Stockholders' equity

 

 

  

 

 

  

Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued or outstanding

 

 

 —

 

 

 —

Common stock, $0.001 par value, 50,000,000 shares authorized; 18,035,025 and 15,663,221 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

 

18

 

 

16

Additional paid-in-capital

 

 

82,815

 

 

62,593

Accumulated deficit

 

 

(48,413)

 

 

(23,720)

Total stockholders' equity

 

 

34,420

 

 

38,889

Total liabilities and stockholders' equity

 

$

43,697

 

$

43,549

 

The accompanying notes are an integral part of these financial statements.

5

Table of Contents

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS

(amounts in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Revenues

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses

 

 

 

 

 

 

 

 

  

 

 

  

Research and development

 

 

7,122

 

 

3,821

 

 

19,302

 

 

8,540

General and administrative

 

 

2,012

 

 

1,298

 

 

5,886

 

 

4,109

Total operating expenses

 

 

9,134

 

 

5,119

 

 

25,188

 

 

12,649

Loss from operations

 

 

(9,134)

 

 

(5,119)

 

 

(25,188)

 

 

(12,649)

Other income

 

 

 

 

 

 

 

 

  

 

 

  

Dividend and interest income, net

 

 

116

 

 

232

 

 

495

 

 

454

Net loss

 

$

(9,018)

 

$

(4,887)

 

$

(24,693)

 

$

(12,195)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders basic and diluted

 

$

(0.57)

 

$

(0.31)

 

$

(1.57)

 

$

(0.86)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

15,752,196

 

 

15,645,545

 

 

15,695,263

 

 

14,228,192

 

The accompanying notes are an integral part of these financial statements.

6

Table of Contents

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY / DEFICIT

(amounts in thousands, except shares)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Paid in

 

Accumulated

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Total

Balance as of December 31, 2017

 

9,907,548

 

$

10

 

$

3,458

 

$

(4,450)

 

$

(982)

Issuance of common shares

 

283,452

 

 

 1

 

 

1,949

 

 

 —

 

 

1,950

Issuance of common shares, upon completion of Initial Public Offering, net of issuance costs of $5,898

 

5,454,545

 

 

 5

 

 

54,097

 

 

 —

 

 

54,102

Stock-based compensation

 

 —

 

 

 —

 

 

1,319

 

 

 —

 

 

1,319

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(4,282)

 

 

(4,282)

Balance as of March 31, 2018

 

15,645,545

 

$

16

 

$

60,823

 

$

(8,732)

 

$

52,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 —

 

 

 —

 

 

740

 

 

 —

 

 

740

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(3,026)

 

 

(3,026)

Balance as of June 30, 2018

 

15,645,545

 

$

16

 

$

61,563

 

$

(11,758)

 

$

49,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 —

 

 

 —

 

 

889

 

 

 —

 

 

889

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(4,887)

 

 

(4,887)

Balance as of September 30, 2018

 

15,645,545

 

$

16

 

$

62,452

 

$

(16,645)

 

$

45,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

15,663,221

 

$

16

 

$

62,593

 

$

(23,720)

 

$

38,889

Stock-based compensation

 

 —

 

 

 —

 

 

682

 

 

 —

 

 

682

Exercise of stock options

 

2,581

 

 

 —

 

 

 1

 

 

 —

 

 

 1

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(7,204)

 

 

(7,204)

Balance as of March 31, 2019

 

15,665,802

 

$

16

 

$

63,276

 

$

(30,924)

 

$

32,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares, net of issuance costs of $11

 

21,744

 

 

 —

 

 

230

 

 

 —

 

 

230

Stock-based compensation

 

 —

 

 

 —

 

 

1,030

 

 

 —

 

 

1,030

Net loss

 

 —

 

 

 —

 

 

 -

 

 

(8,471)

 

 

(8,471)

Balance as of June 30, 2019

 

15,687,546

 

$

16

 

$

64,536

 

$

(39,395)

 

$

25,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares, net of issuance costs of $1,991

 

2,347,479

 

 

 2

 

 

17,503

 

 

 —

 

 

17,505

Stock-based compensation

 

 —

 

 

 —

 

 

776

 

 

 —

 

 

776

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(9,018)

 

 

(9,018)

Balance as of September 30, 2019

 

18,035,025

 

$

18

 

$

82,815

 

$

(48,413)

 

$

34,420

 

 

The accompanying notes are an integral part of these financial statements.

 

 

7

Table of Contents

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

  

 

 

  

Net loss

 

$

(24,693)

 

$

(12,195)

Reconciliation of net loss to net cash used in operating activities

 

 

  

 

 

  

Depreciation and amortization

 

 

218

 

 

 9

Stock-based compensation expense

 

 

2,488

 

 

2,949

Changes in operating assets and liabilities:

 

 

  

 

 

  

Prepaid expenses and other assets

 

 

(618)

 

 

(515)

Accounts payable, accrued expenses and other

 

 

3,249

 

 

584

Net cash used in operating activities

 

 

(19,356)

 

 

(9,168)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

  

 

 

  

Property and equipment, net

 

 

(868)

 

 

(182)

Net cash used in investing activities

 

 

(868)

 

 

(182)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

  

 

 

  

Proceeds from issuance of common stock, net

 

 

17,736

 

 

56,512

Exercise of options

 

 

 1

 

 

 —

Due to/from Parent

 

 

174

 

 

(556)

Note Payable Parent

 

 

 —

 

 

(371)

Net cash provided by financing activities

 

 

17,911

 

 

55,585

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(2,313)

 

 

46,235

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of the period

 

 

42,565

 

 

887

Cash and cash equivalents, end of the period

 

$

40,252

 

$

47,122

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

  

 

 

  

Interest paid

 

$

47

 

$

 1

 

 

 

 

 

 

 

Supplemental disclosure of non-cash Financing Activity:

 

 

  

 

 

  

Deferred issuance costs, unpaid as of December 31, 2017

 

$

 —

 

$

391

Deferred issuance costs reclassified to additional paid-in-capital upon completion of initial public offering.

 

$

 —

 

$

461

Reclassification of net Parent Investment in the Company to accumulated deficit.

 

$

 —

 

$

440

 

The accompanying notes are an integral part of these financial statements.

8

Table of Contents

BIOXCEL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

Note 1. Organization and Principal Activities

BioXcel Therapeutics, Inc. (the “Company” or “BTI”) is a clinical stage biopharmaceutical company utilizing novel artificial intelligence-based approaches to identify the next wave of medicines across neuroscience and immuno-oncology. The Company’s drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. The Company is a majority-owned subsidiary of BioXcel Corporation (“BioXcel” or “Parent”) and was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is in New Haven, Connecticut. Unless otherwise indicated or the context requires otherwise, references in this report to “we,” “our,” “us” and similar expressions refer to BioXcel Therapeutics, Inc.

The unaudited financial information for the nine months ended September 30, 2019 and 2018 is presented on the same basis as the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The Company does not have any components of other comprehensive income (loss) recorded within its financial statements, and, therefore, does not separately present a statement of comprehensive income (loss) in its financial statements.

Certain reclassifications have been made to the prior year financial information to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.

The Company’s primary activities have been the development of a clinical plan and pre-clinical research and development of two advanced programs: BXCL501, a sublingual thin film formulation of dexmedetomidine designed for acute treatment of agitation resulting from neurological and psychiatric disorders, and BXCL701, an immuno-oncology agent designed for treatment of a rare form of prostate cancer and for treatment of pancreatic cancer. These two programs and two emerging programs BXCL502 and BXCL702 (together, the “BTI Business”) have been contributed to the Company from the Parent pursuant to an asset contribution agreement, effective June 30, 2017, with BioXcel, as amended and restated on November 7, 2017 (the “Contribution Agreement”).  

Note 2. Initial Public Offering

On March 7, 2018, the Company’s registration statement on Form S‑1 relating to its initial public offering of its common stock (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). The IPO closed on March 12, 2018, and the Company issued and sold 5,454,545 shares of common stock at a public offering price of $11.00 per share. Gross proceeds totaled $60,000 and net proceeds totaled $54,102 after deducting underwriting discounts and commissions of $4,200 and other offering costs of approximately $1,698.

In connection with and effective upon the completion of its IPO, the Company effectuated a 237 to one stock split. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements have been adjusted retroactively, where applicable, to reflect the stock split.

Also, in connection with the completion of its IPO, the Company amended its articles of incorporation to authorize the issuance of up to 50,000,000 shares of common stock with a par value of $.001 each and 10,000,000 shares of preferred stock with a par value of $.001 each.

9

Table of Contents

Note 3. Liquidity and Going Concern

In accordance with Accounting Standards Update (“ASU”) 2014‑15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205‑40), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

The Company’s financial statements are prepared using Generally Accepted Accounting Principles in the United States of America (“GAAP”) applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses and negative operating cash flows since inception. For the nine months ended September 30, 2019, the Company recorded a net loss of approximately $24,693 and used approximately $19,356 of cash in operating activities. As of September 30, 2019, the Company had approximately $40,252 in cash and cash equivalents and working capital of approximately $33,155. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. The Company can give no assurances that any additional capital that it is able to obtain, if any, will be sufficient to meet its needs, or that any such capital will be obtained on acceptable terms. If the Company is unable to obtain adequate capital, it could be forced to cease operations or substantially curtail its activities. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should the Company be unable to continue as a going concern.

Management’s plan to continue as a going concern includes obtaining additional capital resources. Management’s plans to obtain such resources for the Company include obtaining capital from the sale of its equity securities, entering into strategic partnership arrangements and short-term borrowings from banks, stockholders or other related parties, if needed. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

Note 4. Summary of Significant Accounting Policies

Use of Estimates

The Company’s financial statements are prepared in accordance with GAAP. The preparation of financial statements requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in its financial statements and the accompanying notes. The most significant estimates in the financial statements relate to the fair value of equity awards and valuation allowance related to the Company’s deferred tax assets and liabilities.

Unaudited Interim Financial Information

The accompanying unaudited financial statements do not include all of the information and footnotes required by GAAP. The accompanying year-end balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2019, and the results of its operations for the three and nine months ended September 30, 2019 and 2018 and its cash flows for the nine months ended September 30, 2019 and 2018, respectively. The results for the nine months ended September 30, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods or any future year or period.

10

Table of Contents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of September 30, 2019, cash equivalents were comprised of money market funds.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until the equity financing was consummated. After consummation of an equity financing, these costs were recorded in stockholders’ equity as a reduction of proceeds generated as a result of the offering.

As of December 31, 2017, the Company recorded deferred offering costs relating to its IPO of $461. The Company’s IPO was completed in March 2018, and these costs, as well as additional IPO costs including commissions of $4,200 and an additional $1,237 of other expenses incurred in 2018, were charged to Additional paid-in-capital.

Effective September 23, 2019, the Company terminated its At-The-Market (“ATM”) program. All costs associated with this program have been amortized and charged to Additional paid-in-capital. 

Property and Equipment

Equipment consists of computers and related equipment that are stated at cost and depreciated using the straight-line method over estimated useful life of 5 years. Furniture is being depreciated using the straight-line method over approximately 7 years. Leasehold improvements are being amortized over the shorter of the life of the lease or the asset.

The Company follows the guidance provided by the Financial Accounting Standards Board (“FASB”) ASC Topic 360‑10, Property, Plant, and Equipment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated. Impairment charges are recognized at the amount by which the carrying amount of an asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

Since its inception, the Company has not recognized any impairment or disposition of long lived assets.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our lease did not provide an implicit rate, we used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Renewal options were not included in our calculation of the related asset and liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair

11

Table of Contents

market values for all share-based awards made to employees and directors, including stock options. The Company’s stock-based compensation plan was adopted and became effective in August 2017. Prior to the Company adopting its stock-based compensation plan, the Parent granted stock options to its employees. As a result, related stock-based compensation expense has been allocated to the Company over the required service period over which these BioXcel stock option awards vest in the same manner that salary costs of employees have been allocated to the BTI Business in the carve-out process.

Both BioXcel and the Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period. The estimated fair value of stock option awards was determined using the Black-Scholes option pricing model on the date of grant. Significant judgment and estimates were used to estimate the fair value of these awards, as they were not publicly traded. Stock awards granted by the Company subsequent to the IPO are valued using market prices at the date of grant.

ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Black-Scholes option-pricing model was used as its method of determining fair value. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the award is recognized as an expense in the statement of operations over the requisite service period. The periodic expense is then determined based on the valuation of the options.

The Company adopted FASB ASU 2016-09,  Compensation – Stock Compensation as of January 1, 2018 and has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

The Company adopted FASB ASU 2018-07,  Improvements to Nonemployee Share-Based Payment Accounting as of January 1, 2019 which allows non-employee options to be expensed using the adoption date fair value. This is expected to reduce the volatility of stock based compensation in future periods. Prior to the adoption date, such options were re-measured at each valuation date. The adoption of this standard is not expected to have a significant impact on the Company’s results of operations.

Research and Development Costs

Research and development expenses include wages, benefits, facilities, supplies, external services, clinical study and manufacturing costs and other expenses that are directly related to its research and development activities. At the end of the reporting period, the Company compares payments made to third party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs. The Company expenses research and development costs as incurred.

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.

Fair Value Measurements

ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest

12

Table of Contents

priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:

·

Level 1—Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

·

Level 2—Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

·

Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk in its assessment of fair value.

The carrying amounts of cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments.

Net Loss per Share

The Company computes basic net loss per share by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The potential dilutive securities included outstanding options (for both employees and non-employees) for the three and nine months ended September 30, 2019 and 2018. Such securities have not been included in the loss per share calculation since their impact would be anti-dilutive. There were 3,073,861 and 2,919,016 shares of options that were excluded from the calculation of the loss per share for the three and nine months ended September 30, 2019, respectively.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016‑02 Lease Accounting Topic 842. This ASU requires the Company to record all leases longer than one year on its balance sheet. Under the new guidance, when the Company records leases on its balance sheet, it will record a liability with a value equal to the present value of payments it will make over the life of the lease and an asset representing the underlying leased asset. The new accounting guidance requires the Company to determine if its leases are operating or financing leases, similar to current accounting guidance. The Company will record expense for operating type leases on a straight-line basis as an operating expense and it will record expense for finance type leases as interest expense. The new lease standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company adopted the new standard in January 2019 and recorded a ROU asset and related liability in the amount of $1,308 on commencement of a new office lease.

Note 5. Transactions with BioXcel

The Company has entered into the Contribution Agreement, pursuant to which BioXcel agreed to contribute BioXcel’s rights, title and interest in BXCL501, BXCL701, BXCL502 and BXCL702, and all of the assets and liabilities associated in consideration for (i) 9,480,000 shares of our common stock, (ii) $1,000 upon completion of an initial public offering, (iii) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient

13

Table of Contents

in the bridging bioavailability/ bioequivalence study for the BXCL501 program, (iv) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the Phase 2 Proof of Consent open label monotherapy or combination trial with Keytruda for the BXCL701 program and (v) a one-time payment of $5,000 within 60 days after the achievement of $50,000 in cumulative net sales of any product or combination of products resulting from the development and commercialization of any one of the Candidates or a product derived therefrom. With the completion of the Company’s IPO in March 2018, $1,000 was charged to Research and Development costs in connection with (ii) above and was paid on April 5, 2018. The Company paid $500 to BioXcel in connection with (iii) above in April 2019. In July 2019, the Company completed the first dosing of a patient in the combination trial of BXCL701 with Keytruda, and as a result the Company paid $500 to BioXcel in connection with (iv) above in July 2019.

We entered into a separation and shared services agreement with BioXcel that took effect on June 30, 2017, as amended and restated on November 7, 2017, (the “Services Agreement”), pursuant to which BioXcel will allow us to continue to use the office space, equipment, services and leased employees based on the agreed upon terms and conditions for a payment of defined monthly and/or hourly fees. The parties have agreed that the services and office space provided under the Services Agreement shall decrease over time until the 12-month anniversary of the date of the Services Agreement. The office space and equipment portion of the Services Agreement ended effectively on April 30, 2018 when the Company moved to new office space to accommodate additional personnel that had been hired.  Services to be provided by BioXcel through its subsidiary in India, were originally expected to decrease through June 30, 2019 provided such dates may be extended upon mutual agreement between the parties.  The parties are currently discussing extending the term of these services provided however no definitive agreement has been agreed upon as of the date hereof.  There can be no assurance that the parties will agree to any extension to the Services Agreement in the future.

On or before December 31, 2019, the Company expects to have the option to enter into a collaborative services agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing EvolverAI. We have agreed that this agreement will be negotiated in good faith and that such agreement will incorporate reasonable market-based terms, including consideration for BioXcel reflecting a low, single-digit royalty on net sales and reasonable development and commercialization milestone payments, provided that (i) development milestones shall not exceed $10,000 in the aggregate and not be payable prior to proof of concept in humans and (ii) commercialization milestones shall be based on reaching annual net sales levels, be limited to 3% of the applicable net sales level, and not exceed $30,000 in the aggregate. BioXcel shall continue to make such product identification and related services available to us for at least five years from June 30, 2017 pursuant to the Services Agreement.  The parties are currently discussing extending the product identification and related services that BioXcel would provide however no definitive agreement has been agreed upon as of the date hereof.  There can be no assurance that the parties will agree to any extension to the collaborative services agreement in the future.

In connection with the Services Agreement, BioXcel agreed to provide the Company a line of credit, which was capped at $1,000, or the Total Funding Amount, pursuant to the terms of a grid note, the (“Grid Note”). The Grid Note was payable upon the earlier of (i) the completion of an initial public offering and (ii) December 31, 2018, together with interest on the unpaid balance of each advance made under the Grid Note, which would accrue at a rate per annum equal to the applicable federal rate for short-term loans as of the date thereof, in each case calculated based on a 365‑day year and actual days elapsed.

All amounts due to BioXcel under the line of credit, the Grid Note, and for expenses paid on the Company’s behalf were paid following the completion of the Company’s IPO on March 20, 2018.

14

Table of Contents

Note 6. Property & Equipment

Property and Equipment, net consisted of the following

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

    

2019

    

2018

 

 

Unaudited

 

 

Computers and related equipment

 

$

228

 

$

169

Furniture

 

 

344

 

 

 4

Leasehold improvements

 

 

641

 

 

172

 

 

 

1,213

 

 

345

Accumulated depreciation

 

 

(127)

 

 

(18)

 

 

$

1,086

 

$

327

 

 

Note 7. Commitments and Contingencies

Master Service Agreements

The Company has entered into a Master Services Agreement (“MSA”) with a Contract Research Organization (“CRO”), dated November 1, 2018 for strategic planning, expert consultation, clinical trial services, statistical programming and analysis, data processing, data management, regulatory, clerical, project management, medical device services, and other research and development services as set forth in specific work orders. This agreement is for a period of five (5) years. 

Excluding the CRO’s property, all improvements, inventions, processes, techniques, work product, know-how, data and information generated, conceived, reduced to practice or derived under the MSA by the CRO or its personnel and subcontractors, shall be and remain the exclusive property of the Company, and any inventions that may evolve from the foregoing shall belong to the Company.

The Company entered into a series of cancellable work orders to support its clinical trial activities, related to the first of the Company’s BXCL 701 clinical trials. This clinical trial is expected to cost approximately $10,000 and is anticipated to take place over the next two years.  To date, the Company has incurred $1,806 in costs for the work surrounding this trial.

In the first quarter of 2019 the Company entered into a second series of cancellable work orders to support a second clinical trial related the Company’s BXCL 701 product candidate.  This clinical trial is expected to aggregate approximate approximately $8,000 and it is anticipated to take place over the next three years.  Approximately one half of this cost is to be reimbursed by a partner.  The Company has incurred $1,190 of costs in connection with this trial and has also recorded a related receivable of $173.

In addition, an MSA was signed with a second CRO during the first quarter of 2019 to include strategic planning, expert consultation, regulatory activities, data interpretation, New Drug Application (“NDA”) services, and research and development services, including clinical, data management, statistical and medical writing activities.

15

Table of Contents

Note 8. Accrued Expenses and Other Current Liabilities

Accrued expenses consist of the following:

 

 

 

 

 

 

 

 

    

September 30, 2019

    

December 31, 2018

 

 

 

 

 

Drugs and clinical trial expenses

 

$

1,429

 

$

1,887

Accrued salaries, benefits and travel related costs

 

 

1,172

 

 

774

Professional and consultant fees

 

 

409

 

 

181

Legal expenses

 

 

377

 

 

105

Other administrative accruals

 

 

 —

 

 

109

 

 

$

3,387

 

$

3,056

 

 

Other current liabilities as of September 30, 2019 includes $161 for the current portion of Operating lease liabilities and $361 for the financing of insurance premiums.

 

Note 9. Stockholders’ Equity (Deficit)

Authorized Capital

The Company is authorized to issue up to 10,000,000 preferred shares with a par value of $0.001 per share. No preferred shares are issued and outstanding.

The Company is authorized to issue up to 50,000,000 shares of common stock with a par value of $0.001 per share. The Company had 18,035,025  shares of common stock outstanding as of September 30, 2019.

Description of Common Stock

Each share of common stock has the right to one vote. The holders of common stock are entitled to dividends when funds are legally available and when declared by the board of directors.

Common Stock Issuances

On March 7, 2018, the Company’s registration statement on Form S-1 relating to the Company’s IPO was declared effective by the SEC. The IPO closed on March 12, 2018, and the Company issued and sold 5,454,545 shares of common stock at a public offering price of $11.00 per share, for gross proceeds of $60,000 and net proceeds of $54,102 after deducting underwriting discounts and commissions of $4,200 and other offering costs of $1,698.

In January and February 2018, the Company issued 283,452 shares of common stock with an issuance price of $6.88 per share for gross and net proceeds of $1,950.

On May 20, 2019, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company may offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having an initial offering price no greater than $20.0 million (the “Shares”), from time to time, through an “at the market offering” program under which Jefferies will act as sales agent.

Under the Sale Agreement, the Company set the parameters for the sale of Shares, including the number of Shares to be issued, the time period during which sales are requested to be made, limitations on the number of Shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the Sale Agreement, Jefferies may sell the Shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Capital Market or any other existing trading market for the Common Stock. The Company agreed to pay Jefferies a commission equal to 3.00% of the gross sales proceeds of any Shares sold through Jefferies under the Sale Agreement and has provided Jefferies with customary indemnification and contribution rights. The Sale Agreement

16

Table of Contents

could be terminated at any time by either party upon prior written notice to the other party and was terminated by the Company on September 22, 2019. All deferred issuance costs (including commissions) aggregating $400 associated with implementing the Sale Agreement were charged to Additional paid in  capital during the nine months ended September 30, 2019.

For the three months ended September 30, 2019, the Company sold 44,449 shares under the Sale Agreement for gross proceeds of $496, issuance costs of $390 or net proceeds of $106.  

For the nine months ended September 30, 2019, the Company sold 66,193 shares under the Sale Agreement for gross proceeds of $737, issuance costs of $400 or net proceeds of $337.  

On September 26, 2019, the Company entered into an underwriting agreement with several underwriters in connection with the issuance and sale by the Company in a public offering of 2,303,030 shares of the Company’s common stock at a public offering price of $8.25 per share, less underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-230674) and a related prospectus supplement filed with the SEC (the “September 2019 Offering”). The September 2019 Offering closed on September 30, 2019.

The Company received gross and net proceeds of approximately $19,000 and $17,399 respectively from the September 2019 Offering. The Company intends to use the net proceeds of the September 2019 Offering for general corporate purposes, which may include development and commercialization of their product candidates, research and development, general and administrative expenses, license or technology acquisitions, and working capital and capital expenditures.

Note 10. Stock-Based Compensation

Stock Options

The Company’s 2017 Stock Incentive Plan (the “2017 Stock Plan”) became effective in August 2017 and will expire in August 2027. Under the 2017 Stock Plan, the Company may grant incentive stock options, non-statutory stock options, restricted stock awards and other stock-based awards.

As of September 30, 2019, there were 3,442,313 shares of the Company’s common stock authorized for issuance under the 2017 Stock Plan. Options granted under the 2017 Stock Plan have a term of ten years with vesting terms determined by the board of directors, which is generally four years.

The fair value of options granted during the nine months ended September 30, 2019 was estimated using the Black-Scholes option-pricing model with the following assumptions.

 

 

 

 

 

 

 

 

 

 

 

For the

 

 

 

Nine Months Ended

 

 

    

September 30, 2019

  

Exercise price per share

 

$

7.91

 

-

$

11.28

 

Expected stock price volatility

 

 

78.05

%

-

 

79.48

%

Risk-free rate of interest

 

 

1.51

%

-

 

2.53

%

Fair value of grants per share

 

$

5.31

 

-

$

8.17

 

Expected Term (years)

 

 

5.0

 

-

 

7.0

 

 

Prior to the Company’s IPO, it did not have a history of market prices of its common stock and, as such, volatility was estimated using historical volatilities of similar public companies. The expected term of the employee awards is estimated based on the simplified method, which calculates the expected term based upon the midpoint of the term of the award and the vesting period. The Company uses the simplified method because it does not have sufficient option exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term of non-employee awards represents the awards contractual term. The expected dividend yield is 0% as the Company has no history of paying dividends nor does management expect to pay dividends over the contractual terms of these options.

17

Table of Contents

The risk-free interest rates are based on the United States Treasury yield curve in effect at the time of grant, with maturities approximating the expected term of the stock options.

The following table summarizes information about stock option activity under the 2017 Stock Plan for the nine months ended September 30, 2019 (in thousands, except share and per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Number

 

Weighted Average

 

Total

 

Remaining

 

 

of

 

Exercise

 

Intrinsic

 

Contractual

 

  

Shares

  

Price per Share

  

Value

  

Life (in years)

Outstanding as of January 1, 2019

 

2,744,153

 

$

2.33

 

$

7,411

 

8.8

Options granted

 

361,800

 

$

9.95

 

$

 —

 

9.6

Options forfeited

 

(11,250)

 

$

8.45

 

$

 —

 

 —

  Options exercised

 

(2,581)

 

$

0.41

 

$

 —

 

 —

Outstanding as of September 30, 2019

 

3,092,122

 

$

3.20

 

$

14,431

 

8.2

 

 

 

 

 

 

 

 

 

 

 

Options vested and exercisable as of September 30, 2019

 

2,058,172

 

$

1.53

 

$

11,995

 

8.0

 

There were 350,191 shares available for grant as of September 30, 2019.

The Company recognized stock-based compensation expense under the 2017 Stock Plan of $758 and $2,427 for the three and nine months ended September 30, 2019, respectively. The Company recognized stock-based compensation expense under the 2017 Stock Plan of $917 and $2,777 for the three and nine months ended September 30, 2018, respectively.  

The total grant-date fair value of options was $2,453 for the nine months ended September 30, 2019.

Unrecognized compensation expense related to unvested awards as of September 30, 2019 was $3,359 and will be recognized over the remaining vesting periods of the underlying awards. The weighted-average period over which such compensation is expected to be recognized is 1.4 years.

BioXcel Charges

BioXcel has granted stock options to its employees under its own Equity Incentive Plan (“BioXcel Plan”). Stock-based compensation expense from the BioXcel Plan is allocated to the Company over the period over which those stock option awards vest and are based on the percentage of time spent on Company activities compared to BioXcel activities, which is the same basis used for allocation of salary costs. The BioXcel stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period. The estimated fair value of these BioXcel stock option awards was determined using the Black Scholes option pricing model on the date of grant. Significant judgment and estimates were used to estimate the fair value of these awards, as they are not publicly traded.

Share based compensation expense (income), net of forfeitures, recognized by the Company in its statements of operations related to BioXcel equity awards totaled approximately $18 and $61 for the three and nine months ended September 30, 2019, respectively and $(27) and $172 for the three and nine months ended September 30, 2018, respectively.

Total share based compensation charges were approximately $776 and $2,488 for the three and nine months ended September 30, 2019, respectively and $890 and $2,949 for the three and nine months ended September 30, 2018, respectively.

Note 11. Income Taxes

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation

18

Table of Contents

allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

As a result of the Company’s cumulative losses, management has concluded that a full valuation allowance against the Company’s net deferred tax assets is appropriate. No income tax liabilities existed as of September 30, 2019 and December 31, 2018 due to the Company’s continuing operating losses.

Note 12. Leases

The Company entered into an agreement to lease approximately 11,040 square feet of space on the 12th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut that commenced February 22, 2019 (the “Commencement Date”). The premises were occupied in March 2019.

The term of the 12th floor lease continues from the Commencement Date through the last day of the calendar month immediately following the seventh anniversary of the Commencement Date.

The Company’s improvement costs were approximately $641 and are being amortized over the life of the lease.

Maturities of the operating lease liability are as follows:

 

 

 

 

 

Year ending December 31,

    

Amount

2019 (excluding the nine months ended September 30, 2019)

 

$

51

2020

 

 

208

2021

 

 

196

2022

 

 

219

2023

 

 

225

Thereafter

 

 

506

Total lease payments

 

 

1,405

Less imputed interest

 

 

(173)

Total lease liability

 

 

1,232

Less current portion

 

 

(161)

Operating lease liability

 

$

1,071

 

The current portion of the Company’s operating lease liability of $161 as of September 30, 2019 is included in other current liabilities on the balance sheet.

The Company recorded amortization charges and interest expense of $109 and $30, respectively related to its operating lease right-of-use asset for the nine months ended September 30, 2019.

The Company has an option to renew the lease for one additional five-year term at 95% of the then-prevailing market rates but not less than the rental rate at the end of the initial lease term. 

 

19

Table of Contents

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2018. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, such as information with respect to our plans and strategy for our business and expectations related to the clinical development of our product candidates, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

All dollar amounts in this discussion and analysis are to the nearest thousand unless otherwise noted.

Overview

We are a clinical stage biopharmaceutical company utilizing novel artificial intelligence-based approaches to identify the next wave of medicines across neuroscience and immuno-oncology. Our drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices.

We believe that this differentiated approach has the potential to reduce the cost and time of drug development in diseases with substantial unmet medical need. Our two most advanced clinical development programs are BXCL501, a proprietary sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine, or Dex, for acute treatment of agitation resulting from neuropsychiatric disorders, and BXCL701, an orally available systemic innate-immune activator for treatment of an aggressive form of prostate cancer and pancreatic cancer.

During the third quarter of 2019, we continued to advance the development of our two lead clinical programs, BXCL501 and BXCL701.

As of November 1, 2019, our patent portfolio included 3 Patent Cooperation Treaty applications, 5 U.S. utility applications, 22 U.S. provisional applications, and 33 non-U.S. applications.

BXCL501 Neuroscience Program

On July 22, 2019, we announced positive top-line results from our adaptive Phase 1b, randomized, double-blind, placebo-controlled, multi-center, U.S. trial, evaluating multiple doses of BXCL501 for acute treatment of agitation in 135 patients with schizophrenia. Since that time, we have been preparing for an end of Phase 2 meeting with the U.S. Food and Drug Administration (“FDA”) to obtain additional feedback on progressing to a Phase 3 pivotal trial for agitation in schizophrenia and bipolar disorder. We anticipate enrolling approximately 600 to 700 patients (300-350 each in schizophrenia and bipolar disorder) across two Phase 3 pivotal trials, which are designed to measure reduction in Positive and Negative Syndrome Scale -Excitatory Component at two hours as the primary endpoint, as discussed with the FDA and used in clinical trials of other approved agents.

We also expect to begin an adaptive Phase 1b/2 trial in agitated Alzheimer’s disease/dementia patients in the fourth quarter of 2019.

On August 20, 2019 we announced that the U.S. Department of Defense’s Congressionally Directed Medical Research Program had awarded us a planning grant as a part of its Alcohol and Substance Abuse Disorders Research Program related to the development of BXCL501 in collaboration with Yale University. The grant will support the development of a clinical study to evaluate the use of BXCL501 for the treatment of alcohol and substance use disorders, particularly related to Post Traumatic Stress Disorder (“PTSD”) and Traumatic Brain Injury (“TBI”). This grant is intended to allow us to expand the use of BXCL to treat agitation symptoms found in patients suffering from both PTSD

20

Table of Contents

and TBI. We are currently planning to submit a grant proposal that would allow for funding of a BXCL501 study in these conditions.

On September 18, 2019, we announced a strategic plan to investigate the development of using wearable digital device technology such as the Apple Watch, with the goal of enhancing the prevention and treatment of agitation including, if approved, the administration of BXCL501 prior to the onset of agitation. We plan to conduct a feasibility study with potential applications in commercially available wearable digital devices to measure nervous and motor system activity relevant to both agitation and the mechanism of action of BXCL501. This study is expected be conducted in collaboration with both clinical investigators and a third-party digital solutions provider.

BXCL701 Immuno-Oncology Program

The Company currently has two planned Phase 1b/2 clinical trials for BXCL701.

We are currently enrolling patients in the U.S. in the double combination of BXCL701 and Keytruda® clinical trial for the treatment of emergent Neuroendocrine Prostate Cancer and, on October 26, 2019, we announced the first clinical results relating to the safety and tolerability of BXCL701 in combination with Keytruda®. Data from the first patient cohort consisting of 400 mcg of BXCL701 plus Keytruda® was well tolerated. We also reported that the study’s second cohort consisting of 600 mcg of BXCL701 along with Keytruda® was enrolling patients and that we expect to report on these additional safety findings by the end of year prior to advancing to the Phase 2 stage efficacy portion of the trial.

In June 2019, we reported that the FDA had cleared the Investigational New Drug application for the triple combination of BXCL701, bempegaldesleukin (produced by Nektar Therapeutics, Inc., or Nektar) and BAVENCIO® (avelumab, Merck KGaA, Darmstadt, Germany and Pfizer) in pancreatic cancer. We expect to commence the BXCL701 phase of the trial following a Pfizer-Nektar safety run-in trial of Avelumab and bempegaldesleuk and the outcome of their trial.

On September 4, 2019 we reported that the FDA had granted Orphan Drug Designation for BXCL701, for the treatment of Acute Myeloid Leukemia (“AML”). This is the third Orphan Drug Designation received for BXCL701 from the FDA in addition to Melanoma and Pancreatic Cancer. Recent preclinical work published in the July 2018 Nature Medicine publication, “DPP8/DPP9 inhibitor-induced pyroptosis for treatment of acute myeloid leukemia,” has pointed to AML as a potential indication for BXCL701 because AML cells are of the same lineage as macrophages, one of BXCL701’s main targets.

Components of Our Results of Operations

Revenues

We have not recognized any revenue since inception.

Operating Costs and Expenses

Research and Development

Research and development expenses consist primarily of costs incurred for the research and development of our clinical and pre-clinical product candidates including:

·

employee-related expenses, including salaries, benefits and stock-based compensation expense and travel expenses for employees engaged in research and development functions;

·

payments to our Parent pursuant to various agreements entered into with the Parent;

21

Table of Contents

·

expenses incurred under agreements with contract research organizations, and sites that conduct our non-clinical studies and clinical trials;

·

costs of outside consultants engaged in research and development activities, including their fees, stock-based compensation and travel expenses; 

·

the cost of acquiring, developing and manufacturing pre-clinical and clinical trial materials and lab supplies; and 

·

occupancy costs, depreciation and other expenses.

Our research and development costs by program for the nine months ended September 30, 2019 and 2018 were as follows:

 

 

 

 

 

 

 

 

 

2019

 

2018

BXCL 501

    

$

11,765

 

$

3,264

BXCL 701

 

 

5,387

 

 

2,922

BXCL 502

 

 

256

 

 

53

BXCL 702

 

 

288

 

 

77

Other research and development programs

 

 

563

 

 

397

Research and development support services

 

 

1,043

 

 

1,827

Total research and development expenses

 

$

19,302

 

$

8,540

 

Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of these or other current or future clinical trials of BXCL501, BXCL701 or our other product candidates. However, our research and development costs have increased, and we expect will continue to increase, as we plan for and begin clinical trials for our current and future product candidates. We may never succeed in achieving regulatory approval for BXCL501, BXCL701 or any of our other product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability.

General and Administrative

General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, corporate development and administrative support functions, including stock-based compensation expenses and benefits. Other significant general and administrative expenses include accounting and legal services, the cost of various consultants, occupancy costs and information systems costs.

We expect that our general and administrative costs, including payroll and related expenses, will increase in the future as we continue to increase our headcount to support the expected growth in our business, expand our operations and organizational capabilities. These increases will likely include increased costs for director and officer liability insurance, hiring additional personnel to support future market research and future product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We also have incurred and expect to continue to incur increased costs associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.

22

Table of Contents

Summary Results of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

Three months ended September 30, 

 

 

Nine months ended September 30, 

 

(amounts in thousands, except percentage)

    

2019

    

2018

    

Change

    

    

2019

    

2018

    

Change

  

Net sales

 

$

 —

 

$

 —

 

$

 —

 

 —

 

 

$

 —

 

$

 —

 

$

 —

 

 —

 

Operating costs and expenses

 

 

  

 

 

  

 

 

  

 

  

 

 

 

  

 

 

  

 

 

  

 

  

 

Research and development

 

 

7,122

 

 

3,821

 

 

3,301

 

86

%  

 

 

19,302

 

 

8,540

 

 

10,762

 

126

%

General and administrative

 

 

2,012

 

 

1,298

 

 

714

 

55

%  

 

 

5,886

 

 

4,109

 

 

1,777

 

43

%

Total operating expenses

 

 

9,134

 

 

5,119

 

 

4,015

 

78

%  

 

 

25,188

 

 

12,649

 

 

12,539

 

99

%

Loss from operations

 

 

(9,134)

 

 

(5,119)

 

 

(4,015)

 

78

%  

 

 

(25,188)

 

 

(12,649)

 

 

(12,539)

 

99

%

Other income

 

 

  

 

 

  

 

 

  

 

  

 

 

 

  

 

 

  

 

 

  

 

  

 

Interest income, net

 

 

116

 

 

232

 

 

(116)

 

(50)

%

 

 

495

 

 

454

 

 

41

 

 9

%

Net loss

 

$

(9,018)

 

$

(4,887)

 

$

(4,131)

 

85

%  

 

$

(24,693)

 

$

(12,195)

 

$

(12,498)

 

102

%

 

Comparison of the Three Months Ended September 30, 2019 and 2018

As a result of the factors described below, we generated a net loss of $9,018 for the three months ended September 30, 2019 compared to $4,887 for the three months ended September 30, 2018, an increase of $4,131.

Revenues

We have not recognized any revenues since inception.

Research and Development Expense

Research and development expenses for the three months ended September 30, 2019 were $7,122, compared to $3,821 for the three months ended September 30, 2018. The increase of $3,301 is attributable to the costs described in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

September 30, 

 

 

 

 

    

2019

    

2018

    

Change

Salaries, bonus & related costs

 

$

1,221

 

$

934

 

$

287

Non-cash stock-based compensation

 

 

441

 

 

680

 

 

(239)

Professional research & project related costs

 

 

1,618

 

 

789

 

 

829

Drug acquisition costs

 

 

500

 

 

 —

 

 

500

Clinical trials expenses

 

 

2,197

 

 

241

 

 

1,956

Chemical, manufacturing and controls ("CMC") cost

 

 

840

 

 

890

 

 

(50)

All other

 

 

305

 

 

287

 

 

18

Total research and development expenses

 

$

7,122

 

$

3,821

 

$

3,301

 

Salaries, bonus & related costs increased due to increases in headcount and related benefits, payroll taxes, recruiting fees and associated travel costs.

Non-cash stock-based compensation decreased due to the adoption of FASB ASU 2018-07 as of January 1, 2019 which allowed non-employee options to be expensed using the adoption date fair value. The adoption date value of the stock price was significantly lower than prior re-measurement dates. In addition, several large option grants became vested during the third quarter of 2018 and there was no corresponding charge during the third quarter of 2019. These lower charges were offset in part by increases in expense relating to new hires.

23

Table of Contents

Drug acquisition costs are related to certain payments triggered pursuant to our asset contribution agreement with our Parent (the “Contribution Agreement”) as discussed in Note 5 to the financial statements included elsewhere in this Quarterly Report.

The increase in professional research & project related costs, and clinical trials expenses reflect the acceleration of research and development activities.

All other expenses increased as a result of higher occupancy costs, trade shows, product liability insurance, research subscription costs and shared service charges.

General and Administrative Expense

General and administrative expenses for the three months ended September 30, 2019 were $2,012, compared to $1,298 for the three months ended September 30, 2018. The increase of $714 is attributable to the costs described in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

September 30, 

 

 

 

 

    

2019

    

2018

    

Change

Salaries, bonus & related costs

 

$

566

 

$

323

 

$

243

Non-cash stock-based compensation

 

 

336

 

 

210

 

 

126

Professional fees

 

 

759

 

 

459

 

 

300

Insurance

 

 

227

 

 

210

 

 

17

All other

 

 

124

 

 

96

 

 

28

Total general and administrative expenses

 

$

2,012

 

$

1,298

 

$

714

 

Salaries, bonus & related costs increased due to increases in headcount and related benefits, payroll taxes, recruiting fees and travel related costs.

Non-cash stock-based compensation increased primarily due to additional grants provided to officers and directors of the Company and increased headcount.

Professional fees increased due to higher patent and legal fees.  

Insurance costs increased due to an increase in director and officer liability insurance.

Comparison of the Nine Months Ended September 30, 2019 and 2018

As a result of the factors described below, we generated a net loss of $24,693 for the nine months ended September 30, 2019 compared to $12,195 for the nine months ended September 30, 2018, an increase of $12,498.

Revenues

As discussed above, we have not recognized any revenues since inception.

24

Table of Contents

Research and Development Expense

Research and development expenses for the nine months ended September 30, 2019 were $19,302, compared to $8,540 for the nine months ended September 30, 2018. The increase of $10,762 is attributable to the costs described in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

September 30, 

 

 

 

 

    

2019

    

2018

    

Change

Salaries, bonus & related costs

 

$

3,997

 

$

1,796

 

$

2,201

Non-cash stock-based compensation

 

 

1,449

 

 

1,890

 

 

(441)

Professional research & project related costs

 

 

3,088

 

 

1,438

 

 

1,650

Drug acquisition costs

 

 

1,000

 

 

1,000

 

 

 —

Clinical trials expenses

 

 

6,444

 

 

834

 

 

5,610

Chemical, manufacturing and controls ("CMC") cost

 

 

2,164

 

 

1,036