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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 March 31, 2023

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 May 3, 2023 was 29,159,638.

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Table of Contents

Page

PART I - FINANCIAL INFORMATION

Forward Looking Statements

3

Summary Risk Factors

4

Item 1.

Financial Statements (Unaudited)

7

Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

7

Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022

8

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022

9

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

10

Notes to Condensed Consolidated Financial Statements

11

Item 2.

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

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

Item 4.

Controls and Procedures

50

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

102

Item 3.

Defaults Upon Senior Securities

102

Item 4.

Mine Safety Disclosures

102

Item 5.

Other Information

102

Item 6.

Exhibits

104

Signatures

106

2

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “anticipate,” “believe,” “can,” “continue,” “could,” “designed,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements use these words or expressions. All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements, including, without limitation, statements regarding:

our ongoing commercialization plans for IGALMITM;
our plans relating to clinical trials for our product candidates;
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, including 505(b)(2) regulatory approval, for our product candidates;
the rate and degree of market acceptance, clinical utility, number of prescribers and formulary wins of IGALMI and any product candidates for which we receive marketing approval;
our commercialization, marketing and manufacturing capabilities and strategy, including the potential benefits from any advertising campaigns;
our participation in, and any potential benefits from, events, conferences, presentations and conventions;
our intellectual property position and strategy;
our estimates regarding expenses, future revenue, capital requirements and need for additional financing;
potential investments in, or other strategic options for, our subsidiary, OnkosXcel Therapeutics, LLC (“OnkosXcel”);
developments relating to our competitors and our industry;
the impact of government laws and regulations; and
our relationship with BioXcel LLC.

These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important 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 the forward-looking statements, including, but not limited to, those listed under “Summary Risk Factors,” Part II, Item 1A. “Risk Factors,” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. These and other important factors discussed under the caption “Risk Factors” in our other filings with the Securities and Exchange Commission (“SEC”) could cause actual results to differ materially from those indicated by the forward-looking statements made in this filing. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change.

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 “BioXcel LLC” refers to the Company’s former parent company and significant stockholder, BioXcel LLC and its predecessor, BioXcel Corporation.

We may use our website as a distribution channel of material information about the Company. Financial and other important information regarding the Company is routinely posted on and accessible through the Investors & Media section of its website at www.bioxceltherapeutics.com. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” option under the News / Events menu of the Investors & Media section of our website at www.bioxceltherapeutics.com.

3

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SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We have a limited operating history and have not generated substantial product revenues to date, which may make it difficult to evaluate the success of our business to date and to assess our future viability.
We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability.
We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We have significant indebtedness and other contractual obligations that could impair our liquidity, restrict our ability to do business and thereby harm our business, results of operations and financial condition. We may not have sufficient cash flow from operations to satisfy our obligations under our financing facilities.
We have limited experience in drug discovery and drug development.
In the near term, we are dependent on the success of IGALMI, and three of our product candidates, BXCL501, BXCL502, BXCL701 and BXCL702. If we are unable to complete the clinical development of or obtain marketing approval for our product candidates or successfully commercialize IGALMI or our product candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business could be substantially harmed.
Interim “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
The regulatory approval processes of the United States (“U.S.”) Food and Drug Administration (“FDA”), and comparable foreign authorities are lengthy, time consuming, expensive and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
Clinical trials are expensive, time-consuming and difficult to design and implement, and involve an uncertain outcome.
We depend on enrollment of patients in our clinical trials to continue development of our product candidates. If we are unable to enroll patients in our clinical trials, our research and development efforts could be adversely affected.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval.
BioXcel LLC’s approach to the discovery and development of product candidates based on EvolverAI, its proprietary pharmaceutical discovery and development engine, is novel and unproven, and we do not know whether we will be able to develop any products of commercial value. Furthermore, EvolverAI could be disrupted due to a rapidly evolving artificial intelligence (“AI”) environment requiring us to in parallel develop an internal alternate AI engine.
If we are required by the FDA or similar regulatory authorities to obtain approval (or clearance, or certification) of a companion diagnostic device in connection with approval of one of our product candidates,

4

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and we do not obtain or face delays in obtaining approval (or clearance, or certification) of a companion diagnostic device, we will not be able to commercialize the product candidate and our ability to generate revenue will be materially impaired.
Regulators may limit our ability to develop or implement our proprietary AI algorithms and/or may eliminate or restrict the confidentiality of our proprietary technology, which could have an adverse effect on our business, results of operations, and financial condition.
Although the FDA approved IGALMI for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder, we still face extensive and ongoing regulatory requirements and obligations for IGALMI and for any product candidates for which we obtain approval.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If our products do not gain market acceptance or if we fail to accurately forecast demand or manage our inventories, our business will suffer because we might not be able to fund future operations.
If we are unable to develop satisfactory sales and marketing capabilities, we may not succeed in commercializing IGALMI or any product candidate for which we may obtain regulatory approval.
Although we obtained FDA approval for IGALMI, our products and product candidates may not be accepted by physicians or the medical community in general.
We continue to depend on BioXcel LLC to provide us with certain services for our business. Our business could be adversely affected if BioXcel LLC is unable to provide such services or there is a disruption in its provision of such services.
BioXcel LLC has significant influence over the direction of our business, and the concentrated ownership of our common stock will prevent you and other stockholders from influencing significant decisions.
We operate in a highly competitive and rapidly changing industry.
We are substantially dependent on third parties for the manufacture of our clinical supplies of our product candidates, and our commercial supplies of IGALMI, and we intend to rely on third parties to produce commercial supplies of any other approved product candidate. Therefore, our development of our products could be stopped or delayed, and our commercialization of any future product could be stopped or delayed or made less profitable if third-party manufacturers fail to obtain approval of the FDA or comparable regulatory authorities or fail to provide us with drug product in sufficient quantities or at acceptable prices.
Data breaches or cyber-attacks could disrupt our business, operations and information technology systems, and financial results, or result in the loss or exposure of confidential or sensitive Company information.
We face risks associated with the increased scrutiny relating to environmental, social and governance matters.
We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to attract and retain highly skilled employees could adversely affect our business.
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our product candidates, others could compete against us more directly, which would harm our business, possibly materially.

5

Table of Contents

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This Quarterly Report includes our trademarks, trade names and service marks, including, without limitation, “IGALMI” and our logo, which are our property and are protected under applicable intellectual property laws. Solely for convenience, trademarks, trade names and service marks may appear in this Quarterly Report without the ®, TM and SM symbols, but such references are not intended to indicate, in any way, that we or the applicable owner forgo or will not assert, to the fullest extent permitted under applicable law, our rights or the rights of any applicable licensors to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply a relationship with, or endorsement or sponsorship of us by, these other parties.

INDUSTRY AND OTHER DATA

Unless otherwise indicated, information contained in this Quarterly Report concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. We believe the information from these third-party publications, research, surveys and studies included in this Quarterly Report is reliable. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in this Quarterly Report under “Forward-Looking Statements” and Part II, Item 1A “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates.

6

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BIOXCEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share amounts)

March 31, 

    

2023

    

December 31, 

(unaudited)

2022

ASSETS

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

165,521

$

193,725

Accounts receivable, net

283

 

248

Inventory

 

1,952

 

1,985

Prepaid expenses

 

4,506

 

3,067

Other current assets

 

5,006

 

3,843

Total current assets

$

177,268

$

202,868

Property and equipment, net

 

1,004

 

1,084

Operating lease right-of-use assets

906

976

Other assets

925

925

Total assets

$

180,103

$

205,853

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

7,742

$

10,228

Accrued expenses

 

17,065

 

18,669

Due to related parties

 

380

 

422

Accrued interest

3,088

3,175

Other current liabilities

484

404

Total current liabilities

$

28,759

$

32,898

Long-term portion of operating lease liabilities

703

 

786

Derivative liabilities

2,574

2,343

Long-term debt

95,062

93,051

Total liabilities

$

127,098

$

129,078

Commitments and contingencies (Note 15)

Stockholders' equity

 

  

 

  

Preferred stock, $0.001 par value, 10,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022

$

$

Common stock, $0.001 par value, 100,000 shares authorized as of March 31, 2023 and December 31, 2022; 29,100 and 28,147 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

29

28

Additional paid-in-capital

 

517,317

 

488,292

Accumulated deficit

 

(464,341)

 

(411,545)

Total stockholders' equity

$

53,005

$

76,775

Total liabilities and stockholders' equity

$

180,103

$

205,853

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

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BIOXCEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share amounts)

(unaudited)

Three Months Ended March 31, 

    

2023

    

2022

    

Revenues

Product revenue, net

$

206

$

Operating expenses

 

 

Cost of goods sold

$

9

$

Research and development

27,800

18,559

Selling, general and administrative

 

23,595

 

12,921

Total operating expenses

$

51,404

$

31,480

Loss from operations

$

(51,198)

$

(31,480)

Other expense (income)

 

 

Interest expense

 

3,367

 

7

Interest income

(2,015)

(15)

Other expense, net

246

Net loss

$

(52,796)

$

(31,472)

Basic and diluted net loss per share attributable to common stockholders

$

(1.84)

$

(1.12)

Weighted average shares outstanding - basic and diluted

 

28,616

 

27,980

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

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BIOXCEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands)

(unaudited)

Additional

Common stock

paid-in-

Accumulated

    

Shares

    

Amount

    

capital

    

deficit

    

Total

Balance as of December 31, 2021

27,980

$

28

$

467,427

$

(245,788)

$

221,667

Stock-based compensation

3,825

3,825

Net loss

(31,472)

(31,472)

Balance as of March 31, 2022

27,980

$

28

$

471,252

$

(277,260)

$

194,020

Additional

Common stock

paid-in-

Accumulated

Shares

    

Amount

    

capital

    

deficit

    

Total

Balance as of December 31, 2022

28,147

$

28

$

488,292

$

(411,545)

$

76,775

Issuance of common shares, net of offering costs

756

1

23,917

23,918

Stock-based compensation

4,877

4,877

Exercise of stock options

173

258

258

Vesting of restricted stock units, net of employee tax obligations

24

(27)

(27)

Net loss

(52,796)

(52,796)

Balance as of March 31, 2023

29,100

$

29

$

517,317

$

(464,341)

$

53,005

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

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BIOXCEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

Three months ended March 31, 

    

2023

    

2022

OPERATING CASH FLOW ACTIVITIES:

 

  

 

  

Net loss

$

(52,796)

$

(31,472)

Reconciliation of net loss to net cash used in operating activities

 

 

Depreciation

 

80

 

77

Accretion of debt discount and amortization of financing costs

333

Change in fair value of derivative liabilities

231

Stock-based compensation expense

 

4,877

 

3,825

Payable-in-kind interest on Credit Agreement

398

Operating lease right-of-use assets

70

66

Changes in operating assets and liabilities

 

 

Accounts receivable

(35)

 

Inventory

 

33

 

(682)

Prepaid expenses, other current assets and other assets

 

(2,006)

 

(3,480)

Accounts payable, accrued expenses, due to related parties, and other current liabilities

 

(4,654)

 

(676)

Accrued interest

1,193

Operating lease liabilities

(77)

(71)

Net cash used in operating activities

$

(52,353)

$

(32,413)

INVESTING CASH FLOW ACTIVITIES:

 

  

 

  

Purchases of property and equipment

$

$

(120)

Net cash used in investing activities

$

$

(120)

FINANCING CASH FLOW ACTIVITIES:

 

  

 

  

Proceeds from issuance of common stock

$

24,657

$

Offering costs for stock issuance

(739)

Payment of employee tax obligations related to vesting restricted stock units

(27)

Exercise of stock options

258

Net cash provided by financing activities

$

24,149

$

Net decrease in cash and cash equivalents

$

(28,204)

$

(32,533)

Cash and cash equivalents, beginning of the period

 

193,725

 

232,968

Cash and cash equivalents, end of the period

$

165,521

$

200,435

Supplemental cash flow information:

 

  

 

  

Deferred initial public offering costs in accrued expenses

$

596

$

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

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BIOXCEL THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except per share amounts and where otherwise noted)

(unaudited)

Note 1. Nature of the Business

BioXcel Therapeutics, Inc. (“BTI” or the “Company”) is a biopharmaceutical company utilizing artificial intelligence (“AI”) approaches to develop transformative medicines in neuroscience and immuno-oncology. The Company is focused on utilizing cutting-edge technology and innovative research to develop high-value therapeutics aimed at transforming patients’ lives. BTI employs a unique AI platform designed to reduce therapeutic development costs and potentially accelerate timelines. The Company’s approach leverages existing approved drugs and/or clinically evaluated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. BTI management believes this differentiated approach has the potential to reduce the expense and time associated with drug development in diseases with substantial unmet medical needs.

As used in these condensed consolidated financial statements, unless otherwise specified or the context otherwise requires, the term “BioXcel LLC” refers to the Company’s former parent and current significant stockholder and its predecessor, BioXcel Corporation. “OnkosXcel” refers to BTI’s wholly owned subsidiary for its advanced immuno-oncology assets, OnkosXcel Therapeutics, LLC.

On April 6, 2022, BTI announced that the U.S. FDA approved IGALMI (dexmedetomidine or “Dex”) sublingual film for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder in adults. IGALMI is approved to be self-administrated by patients under the supervision of a healthcare provider. On July 6, 2022, BTI announced that IGALMI, was commercially available in doses of 120 and 180 micrograms through the Company’s third-party logistics provider and was available for order through wholesalers.

The Company’s most advanced clinical development program is BXCL501, an investigational proprietary, orally dissolving film formulation of Dex for the treatment of agitation associated with psychiatric and neurological disorders.

BTI is conducting clinical trials for the at-home use of BXCL501 for agitation associated with bipolar disorders and schizophrenia. The Company also continues to conduct clinical trials evaluating BXCL501 for the acute treatment of agitation in patients with Alzheimer’s disease in residential care facilities and nursing homes and for adjunctive treatment of patients with Major Depressive Disorder.

The Company’s advanced immuno-oncology asset, BXCL701, is an investigational, orally administered systemic innate immune activator for the treatment of a rare form of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

BTI was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is in New Haven, Connecticut.

Impact of COVID-19 Pandemic

The COVID-19 pandemic and responsive measures have significantly impacted, both directly and indirectly, businesses and commerce.

The Company continues to work closely with clinical sites to monitor the potential impact of the evolving COVID-19 pandemic and the spread of its variants. To date, BTI has not experienced any significant delays in any of its ongoing or planned clinical trials, except for occasional COVID-19 related disruptions, such as to its TRANQUILITY II trial. However, this could change rapidly.

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Note 2. Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements do not include all the information and notes required by Generally Accepted Accounting Principles (“GAAP”) in the U.S. The accompanying year-end balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The unaudited interim condensed consolidated 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 March 31, 2023 and the results of its operations and cash flows for the three months ended March 31, 2023 and 2022. The results for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or period. The accompanying unaudited interim condensed consolidated financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 16, 2023.

The accompanying condensed consolidated financial statements include the accounts for the Company and all entities where BTI has a controlling financial interest after elimination of all intercompany accounts and transactions and have been prepared in conformity with U.S. GAAP.

As of March 31, 2023, the Company had cash and cash equivalents of $165,521 and an accumulated deficit of $464,341. BTI has incurred substantial net losses and negative cash flows from operating activities in nearly every fiscal period since inception and expects this trend to continue for the foreseeable future. The Company recognized net losses of $52,796 and $31,472 for the three months ended March 31, 2023 and 2022, respectively, and had net cash used in operating activities of $52,353 and $32,413 for the three months ended March 31, 2023 and 2022, respectively. The Company believes that its existing cash and cash equivalents will be sufficient to cover its cash flow requirements for at least the next 12 months from the issuance date of these condensed consolidated financial statements. However, the Company’s future requirements may change and will depend on numerous factors.

Note 3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and notes thereto. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates.

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 March 31, 2023 and December 31, 2022, cash equivalents were comprised primarily of money market funds. Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts. BTI management believes it mitigates such risk by investing in or through major financial institutions.

Accounts Receivable, Net

Accounts receivable arise from sales of IGALMI and represent amounts due from distributors. Payment terms generally range from 30 to 75 days from the date of the sale transaction, and accordingly, do not involve a significant financing component. Receivables from product sales are recorded net of allowances which generally include distribution fees, prompt payment discounts, chargebacks, and credit losses. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimated the current expected credit losses of its accounts receivable by assessing the risk of loss and available relevant information about collectability, existing contractual payment terms, actual payment patterns of its customers, individual customer circumstances, and reasonable and supportable forecast of economic conditions expected to exist throughout the contractual life of the receivable. Based on its assessment, as of March 31, 2023, the Company determined that an allowance for credit losses was not required.

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Concentrations of Credit Risk

The Company sells IGALMI through a drop-ship program under which orders from hospitals and similar health care institutions are processed through wholesalers, but shipments of the product are sent directly to the individual hospitals and similar health care institutions. BTI also contracts directly with intermediaries such as group purchasing organizations (“GPOs”). All trade accounts receivables are due from the distributor that fulfills orders on behalf of the Company.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost of inventory is determined on a first-in, first-out basis.

BTI capitalizes inventory costs associated with the Company’s products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as Research and development expense in the Condensed Consolidated Statements of Operations.

The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, will be recorded within Cost of goods sold in the Condensed Consolidated Statements of Operations. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected, write-downs of inventory may be required.

Deferred Initial Public Offering Costs

Deferred initial public offering costs consist of legal, accounting, underwriting fees and other costs incurred through the balance sheet date that are directly related to the Company’s proposed initial public offering of OnkosXcel and are included in Other current assets in the Condensed Consolidated Balance Sheets. The deferred initial public offering costs will reduce the proceeds of the proposed initial public offering of OnkosXcel. Should the proposed initial public offering prove to be unsuccessful, these deferred costs, as well as any additional expenses incurred, will be recorded as an expense in the Condensed Consolidated Statements of Operations.

Property and Equipment

Property and equipment are recorded at cost and depreciated over the shorter of their remaining lease term or their estimated useful life on a straight-line basis as follows:

Equipment

3-5 years

Furniture

7 years

Leasehold improvements

Lesser of life of improvement or lease term

Expenditures for maintenance and repairs which do not improve or extend the useful lives of the respective assets are expensed as incurred. When assets are sold or retired, the related cost and accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included within Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

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 from its use and disposition. 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.

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Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use (“ROU”) assets, Other current liabilities, and the Long-term portion of operating lease liabilities in the Condensed Consolidated Balance Sheets.

ROU assets represent BTI’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when readily determinable. As BTI’s leases do not provide an implicit rate, it used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any prepaid lease payments made and excludes lease incentives. The Company’s leases may include options to extend the lease; such options are included in determining the lease term when it is reasonably certain that BTI will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

Debt and Detachable Warrants

Detachable warrants are evaluated for classification as either equity instruments, derivative liabilities, or liabilities depending on the specific terms of the warrant agreement. The portion of the proceeds allocated to the warrants are accounted for as paid-in capital and a debt discount. The remaining proceeds, as further reduced by discounts created by the bifurcation of any embedded derivatives, are allocated to the debt. Detachable warrants classified as derivative liabilities are accounted for as indicated under “Derivative Assets and Liabilities” section of this Note and as a debt discount. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount from the allocation of proceeds to interest expense using the effective interest method over the expected term of the debt instrument. The Company considers whether there are any embedded features in debt instruments that require bifurcation and separately accounts for them as derivative financial instruments.

The Company entered into financing arrangements, the terms of which involve significant assumptions and estimates, including future net product sales, in determining interest expense, amortization period of the debt discount, as well as the classification between current and long-term portions. In estimating future net product sales, the Company assesses prevailing market conditions using various external market data against the Company’s anticipated sales and planned commercial activities. Consequently, the Company imputes interest on the carrying value of the debt and records interest expense using an imputed effective interest rate. The Company reassesses the expected payments during each reporting period and accounts for any changes through an adjustment to the effective interest rate on a prospective basis, with a corresponding impact to the classification of the Company’s current and long-term portions of the debt.

Derivative Assets and Liabilities

Derivative assets and liabilities are recorded on the Company`s Condensed Consolidated Balance Sheets at their fair value on the date of issuance and are revalued on each balance sheet date until such instruments are settled or expire, with changes in the fair value between reporting periods recorded as other income or expense within Other expense, net in the Condensed Consolidated Statements of Operations.

The Company does not use derivative instruments for speculative purposes or to hedge exposures to cash flow or market risks. Certain financing facilities entered into by the Company include freestanding financial instruments and/or embedded features that require separate accounting as derivative assets and/or liabilities.

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.

Revenue Recognition

The Company’s revenues consist of product sales of IGALMI.

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BTI recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition, BTI management performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be accounted for as a contract modification or as a continuation of the contract for accounting purposes.

The Company assesses whether the goods or services promised within each contract are distinct to identify those that are performance obligations. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such goods and services are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

The Company allocates the transaction price (the amount of consideration it expects to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. The Company’s estimate of the transaction price for each contract includes all variable consideration to which the Company expects to be entitled.

BTI distributes IGALMI in the U.S. through arrangements with a distributor, wholesalers, and GPOs. The distributor and wholesalers help process and fulfill orders from hospitals on the Company’s behalf. The Company believes the hospitals are its customers.

The Company recognizes product revenues, net of consideration payable to customers, as well as variable consideration related to certain allowances and accruals that are determined using either the expected value or most likely amount method, depending on the type of the variable consideration, in its condensed consolidated financial statements at the point in time when control transfers to the customer, which is typically when the product has been delivered to the customer’s location. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s only performance obligation identified for IGALMI is to deliver the quantity of product ordered to the location specified by the customer’s order. The Company records shipping and handling costs associated with delivery of product to its customers within Selling, general and administrative expenses on its Condensed Consolidated Statements of Operations. Under the Company’s current product sales arrangements, BTI does not have contract assets (unbilled receivables), as it generally invoices its customer at the time of revenue recognition.

BTI sells IGALMI at wholesale acquisition cost and calculates product revenue net of variable consideration and consideration payable to third parties associated with distribution of product. The Company records reserves, based on contractual terms, for the following components of consideration related to product sold during the reporting period. Calculating these amounts involves estimates and judgments, and the Company reviews these estimates quarterly and records any material adjustments in the period they are identified, which affects net product revenue and earnings in the period such variances occur.

Trade Discounts and Allowances

The Company provides the distributor and wholesalers with discounts for prompt payment and pays fees to the distributor, wholesalers and GPOs related to distribution of the product. BTI expects the relevant third parties to earn these discounts and fees, and therefore it deducts such amounts from gross product revenue and accounts receivable at the time it recognizes the related revenue.

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Government Rebates

IGALMI is eligible for purchase by, or qualifies for reimbursement from, Medicaid and other U.S. government programs that are eligible for rebates on the price they pay for the product. To determine the appropriate amount to reserve for these rebates, BTI applies the applicable government discount to these sales, and estimates the portion of total rebates that it anticipates will be claimed. The Company deducts certain government rebates from gross product revenue and accounts receivable at the time it recognizes the related revenue; other government rebates are recognized as an accrued liability at the time BTI recognizes the related revenue.

Chargebacks

BTI provides product discounts to hospitals associated with certain GPOs. The Company estimates the chargebacks that it expects to be obligated to provide based upon the terms of the applicable arrangements. BTI deducts such amounts from gross product revenue and accounts receivable at the time it recognizes the related revenue.

Product Returns

The Company provides contractual return rights to its customers including the right to return product within six months of product expiration and up to 12 months after product expiration, as well as for incorrect shipments, and damaged or defective product, which the Company expects to be rare. Management expects product returns to be minimal, thus BTI recognizes a nominal allowance for product returns at the time of each sale. In the future, if any of these factors and/or the history of product returns changes, the Company will adjust the allowance for product returns.

BTI classifies all fees paid to the distributor, other than those discussed above and those related to warehouse operations, as Selling, general and administrative expenses on its Condensed Consolidated Statements of Operations. Fees paid to the distributor for warehouse operations are classified as Cost of goods sold on BTI’s Condensed Consolidated Statements of Operations.

Cost of Goods Sold

Cost of goods sold includes the cost of producing and distributing inventories that are related to product revenues during the respective period. Cost of goods sold may also include costs related to excess or obsolete inventory adjustment charges, as well as costs related to warehouse operations paid to distributors.

Stock-Based Compensation

The Company measures and recognizes stock-based compensation expense based on estimated fair value for all share-based awards made to employees, non-employee service providers, and directors, including stock options and restricted stock units (“RSUs”). The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective in August 2017. The Company’s 2020 Incentive Award Plan (the “2020 Plan”) became effective in May 2020. Following the effective date of the 2020 Plan, the Company ceased granting awards under the 2017 Plan; however, the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.

The Company’s stock-based awards are valued at fair value on the date of grant and that fair value is recognized as an expense in the Condensed Consolidated Statements of Operations over the requisite service period using the accelerated attribution method. The estimated fair value of RSUs is based on the Company’s closing stock price on the date or third-party valuation if related to a subsidiary. The estimated fair value of stock-option and profit unit awards was determined using the Black-Scholes pricing model on the date of grant.

The Black-Scholes pricing model is affected by the Company’s stock price, as well as assumptions regarding variables including, but not limited to, the strike price of the instrument, the risk-free rate, the expected stock price volatility over the term of the awards and expected term of the award. The Company has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

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Research and Development Costs

Research and development expenses include wages, benefits, non-cash stock-based compensation, facilities, supplies, external services, clinical study, manufacturing costs related to clinical trials and other expenses that are directly related to the Company’s 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. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made for the program as a result of the level of service provided, the Company may record net prepaid or accrued expense relating to these costs. Such estimates are subject to change as additional information becomes available. The Company expenses research and development costs as incurred.

Most of the Company’s service providers invoice BTI monthly in arrears for services performed. The Company estimates its accrued expenses as of each balance sheet date in the condensed consolidated financial statements based on facts and circumstances known to management at that time. BTI management periodically confirms the accuracy of the Company’s estimates with the service providers and makes adjustments if necessary.

Although management does not expect its estimates to be materially different from amounts actually incurred, management’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in BTI reporting amounts that are too high or too low in any particular period.

Patent Costs

Costs related to filing and pursuing patent applications are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and are expensed as incurred since recoverability of such expenditures is uncertain.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value, which is defined 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. The Company applies a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources, or observable inputs, and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances, or unobservable inputs. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Fair value measurements must be classified and disclosed in one of the following three categories:

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, as well as considering counterparty credit risk in its assessment of fair value.

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Earnings (Loss) Per Share

Earnings (loss) per share (“EPS”) is calculated by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock that were outstanding. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock that were outstanding for the dilutive effect of common stock equivalents. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. 

Segment Information

The Company operates in a single segment. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. To date, the Company’s chief operating decision maker has made such decisions and assessed performance at the Company level as one segment.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the initial guidance (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 was to be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) - Effective Dates, which deferred the effective dates of Topic 326 for the Company, until fiscal year 2023. The adoption of Topic 326 on January 1, 2023 did not have a material impact on the Company’s condensed consolidated financial statements.

Note 4. Inventory

Inventory consists of the following:

    

March 31, 

    

December 31, 

    

2023

    

2022

Raw materials

$

682

$

682

Work-in-process

708

Finished goods

1,270

595

Total inventory

$

1,952

$

1,985

There were no write-downs of inventory for the three months ended March 31, 2023 and 2022.

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Note 5. Property and Equipment, Net

Property and equipment, net consists of the following:

    

March 31, 

    

December 31, 

    

2023

    

2022

Computers and equipment

$

213

$

213

Furniture

575

575

Leasehold improvements

1,181

1,181

Total property and equipment

$

1,969

$

1,969

Accumulated depreciation

(965)

(885)

Total property and equipment, net

$

1,004

$

1,084

Depreciation expense was $80 and $77 for the three months ended March 31, 2023 and 2022, respectively.

Note 6. Accrued Expenses

Accrued expenses consist of the following:

    

March 31, 2023

    

December 31, 2022

Accrued research and development expenses

$

10,254

$

8,659

Accrued compensation and benefits

2,654

6,370

Accrued professional fees

 

3,735

 

2,738

Accrued taxes

212

82

Other accrued expenses

 

210

 

820

Total accrued expenses

$

17,065

$

18,669

Note 7. Transactions with BioXcel LLC

The Company entered into a Separation and Shared Services Agreement with BioXcel LLC that took effect on June 30, 2017, as amended and restated thereafter (the “Services Agreement”), pursuant to which BioXcel LLC has agreed to provide the Company with certain services through its subsidiaries in India and the U.S., as agreed upon by the parties. These services are primarily for drug discovery, chemical, manufacturing and controls and administrative support.

Service charges recorded under the Services Agreement for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended March 31, 

2023

2022

Research and development

    

$

215

$

306

Selling, general and administrative

 

26

70

Total

$

241

$

376

As of March 31, 2023, $273 of service charges related to the Services Agreement are included in Due to related parties in the Company’s Condensed Consolidated Balance Sheets.

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Note 8. Debt and Credit Facilities

Debt, net of unamortized discounts and financing costs, consists of the following:

March 31, 2023

    

December 31, 2022

Revenue Interest Financing Agreement ("RIFA")

$

30,000

$

30,000

RIFA accrued interest

3,139

2,041

RIFA payments

(29)

(10)

RIFA debt liability

$

33,110

$

32,031

Estimated portion of RIFA debt liability to be paid within one-year

(1,200)

(1,401)

RIFA long-term debt liability

$

31,910

$

30,630

Credit Agreement and Guaranty

70,000

70,000

Payable-in-kind interest on Credit Agreement and Guaranty

1,205

807

Total long-term debt liability

$

103,115

$

101,437

Unamortized debt discounts and issuance costs

(8,053)

(8,386)

Total long-term debt

$

95,062

$

93,051

On April 19, 2022 (the “Effective Date”), the Company entered into two financing agreements: (i) a Credit Agreement and Guaranty (the “Credit Agreement”) by and among the Company, as the borrower, certain subsidiaries of the Company from time to time party thereto as subsidiary guarantors, the lenders party thereto (the “Lenders”), and Oaktree Fund Administration LLC (“OFA”) as administrative agent, and (ii) a Revenue Interest Financing Agreement (as amended from time to time, the “RIFA”; and together with the Credit Agreement, the “OFA Facilities”) by and among the Company, the purchasers party thereto (the “Purchasers”) and OFA as administrative agent. Under the OFA Facilities, the Lenders and the Purchasers agreed to, in aggregate between the two OFA Facilities, provide up to $260,000 in gross funding to support the Company’s commercial activities of IGALMI sublingual film. In addition, the OFA Facilities are intended to support the expansion of clinical development efforts of BXCL501, which includes a Phase 3 program for the acute treatment of agitation in patients with Alzheimer’s disease, and for general corporate purposes. The Lenders and Purchasers are comprised of affiliates of Oaktree Capital Management, L.P. and Qatar Investment Authority.

A summary of the OFA Facilities is provided below.

Credit Agreement

The Credit Agreement provides up to $135,000 in senior secured term loans, of which the initial Tranche A of $70,000 was funded on April 28, 2022, and the remaining tranches may be borrowed at the Company’s option prior to December 31, 2024, subject to satisfaction of certain conditions, including regulatory and financial milestones. Tranche B of the Credit Agreement is $35,000 and is available upon satisfaction of certain conditions, including receipt of certain regulatory and financial milestones. Tranche C of the Credit Agreement is $30,000 and is available upon satisfaction of certain conditions, including specified minimum net sales of the Company attributable to sales of BXCL501 for a trailing consecutive 12-month period. As of March 31, 2023, $65,000 remained available under the Credit Agreement, subject to achievement of the specified conditions and milestones.

The loans under the Credit Agreement do not amortize and mature on the fifth anniversary of the Effective Date; provided that the Company may, at its option, extend the maturity date to the sixth anniversary if, prior to December 31, 2024, the Company receives and satisfies certain conditions including receipt of certain regulatory and financial milestones. Borrowings under the Credit Agreement are issued at a 200-basis point original issue discount and bear interest at a fixed annual rate of 10.25%, payable quarterly. Of such interest, 225-basis points per annum is, at the Company’s option, payable in kind by capitalizing and adding such interest to the outstanding principal amount of loans from the first payment date on which such interest is owed through, and including, the third anniversary of such payment date, unless, with respect to any payment date, the Company elects to pay all or a portion of such interest in cash. The Company is required to pay a ticking fee equal to 0.75% per annum on the undrawn amount of the commitments, payable quarterly commencing 120 days after the funding of the Tranche A term loan through the termination of the commitments, which is expensed as incurred and recognized as Interest expense in the Condensed

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Consolidated Statements of Operations. The Company may voluntarily prepay the Credit Agreement at any time subject to a prepayment fee.

The Company’s obligations under the Credit Agreement are guaranteed by BTI’s existing and subsequently acquired or organized subsidiaries, subject to certain exceptions. BTI’s obligations under the Credit Agreement and the related guarantees thereunder are secured, subject to customary permitted liens and other agreed upon exceptions, by (i) a pledge of all of the equity interests of all of the Company’s existing and any future direct subsidiaries, and (ii) a perfected security interest in all of its and the guarantors’ tangible and intangible assets (except that the guarantees provided by the BXCL701 Subsidiaries (as defined below) are unsecured).

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions, including specific exceptions with respect to product commercialization and development activities. The Company must also comply with certain financial covenants, including (i) maintenance of cash or permitted cash equivalent investments in accounts controlled by OFA for the Lenders, of at least (a) $15,000 from the Effective Date until the date on which the second tranche of loans are funded (the “Step-Up Date”) and (b) $20,000 from and after the Step-Up Date, provided, in the case of (a) and (b), that following any Permitted BXCL701 Release Event (as defined below), such amount will increase by $12,500, and following such time as unaffiliated third parties hold ownership of at least 30% of the equity interests in the BXCL701 Subsidiaries (as defined below), such amount will increase by an additional $5,000 (provided, that such amount will in no event exceed 50% of the aggregate amount of loans outstanding at any time); and (ii) a minimum revenue test, measured quarterly beginning with the Company’s fiscal quarter ending on December 31, 2023 (such six-month period the “Revenue Covenant Measurement Period”), that requires it and its subsidiaries’ consolidated net revenue for the six consecutive month period ending on the last day of each such fiscal quarter to not be less than a minimum revenue amount specified in the Credit Agreement (such testing date, the “Revenue Covenant Measurement Testing Date” and the covenant described in this clause (ii) the “Revenue Covenant”). The Company’s failure to comply with the financial covenants will result in an event of default, subject to certain cure rights with respect to the Revenue Covenant. If, as of a Revenue Covenant Measurement Testing Date, the Company’s revenue for the applicable Revenue Covenant Measurement Period is less than the minimum revenue amount specified for the applicable period then required under the Revenue Covenant, the Company would have a right to cure such shortfall by making a revenue cure payment to the Lenders in an amount equal to the difference between such minimum required revenue amount and the Company’s actual revenues for such Revenue Covenant Measurement Period, such payment to not be less than $1,000. If paid, the Company will be deemed to have complied with the Revenue Covenant as of such Revenue Covenant Measurement Testing Date. Any such payment will be applied to the prepayment of the loans under the Credit Agreement. For the Revenue Covenant Measurement Testing Dates ending December 31, 2023 and March 31, 2024, failure to satisfy the Revenue Covenant could result in a revenue cure payment of up to $7,657 and $10,636, respectively.

Notwithstanding the foregoing, the Credit Agreement permits OnkosXcel (together with OnkosXcel Employee Holdings, LLC (“Employee Holdings”), a subsidiary of BTI, and their respective subsidiaries, the “BXCL701 Subsidiaries”) to receive third-party investment or transfer all or substantially all of their assets to an unaffiliated third-party, in each case subject to terms and conditions set forth in the Credit Agreement, including the escrow of certain proceeds received by BTI and its subsidiaries (other than the BXCL701 Subsidiaries) in respect of these disposition events and, under circumstances set forth in the Credit Agreement, the mandatory prepayment of such escrowed amounts. The Company’s equity interests in the BXCL701 Subsidiaries have been pledged in support of its obligations under the Credit Agreement, and the BXCL701 Subsidiaries have provided direct guarantees of BTI’s obligations under the Credit Agreement on an unsecured basis. However, the pledge, guarantee and other obligations of the BXCL701 Subsidiaries under the Credit Agreement will be released upon certain agreed upon events (“Permitted BXCL701 Release Events”), including an initial public offering by the BXCL701 Subsidiaries or the ownership by unaffiliated third parties of at least 20% of the equity interests in the BXCL701 Subsidiaries.

The Credit Agreement contains events of default that are customary for financings of this type relating to, among other things, payment defaults, breach of covenants, breach of representations and warranties, cross default to material indebtedness, bankruptcy-related defaults, judgment defaults, breach of the financial covenants described above, and the occurrence of certain change of control events. In certain circumstances, events of default are subject to customary

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cure periods. Following an event of default and any applicable cure period, the Lenders will have the right upon notice to terminate any undrawn commitments and may accelerate all amounts outstanding under the Credit Agreement, in addition to other remedies available to them as the Company’s secured creditors.

Revenue Interest Financing Agreement

The RIFA provides up to $120,000 in financing in exchange for a capped revenue interest on net sales of IGALMI, and other future BXCL501 products, if any, that receive regulatory approval for sale. The initial Tranche A of $30,000 was funded on July 8, 2022, and the remaining tranches may be borrowed at the Company’s option prior to December 31, 2024, subject to satisfaction of certain conditions, including certain regulatory, patent, and financial milestones. The effective interest rate on the RIFA as of March 31, 2023, was approximately 14%.

Under the terms of the RIFA, the Purchasers will receive tiered revenue interest payments on U.S. net sales of IGALMI, and other future BXCL501 products, if any, that receive regulatory approval for sale, equal to a royalty ranging from 0.375% to 7.750% of net sales of IGALMI, and other future BXCL501 products, if any, approved for sale in the U.S., subject to a hard cap equal to 1.75x the total amount funded. In addition, if the conditions to the second tranche of the financing provided under the RIFA have been met, once payments equal to the hard cap have been received by the Purchasers, the Company will be required to make revenue interest payments equal to a flat 0.375% royalty on U.S. net sales of IGALMI, and other future BXCL501 products, if any, that receive regulatory approval for sale, through and including March 31, 2036 (the “Tail Royalty”). The Company is also required to make certain additional payments to the Purchasers from time to time to ensure that the aggregate amount of payments received by the Purchasers under the RIFA are at least equal to certain agreed upon minimum levels as of certain specified dates, subject to terms and conditions set forth in the RIFA. Revenue interest payments due under the RIFA are payable quarterly based on net sales.

Any time after the initial funding of the RIFA, BTI has the right (the “BTI Call Option”), but not the obligation, to buy out the Purchasers’ interests in the revenue interest payments at an agreed upon repurchase price. The BTI Call Option can be exercised in year one, two, three and thereafter at a multiple of the Purchasers invested capital of 1.225x,1.375x, 1.525x and 2.25x, respectively. The Purchasers will not be entitled to any Tail Royalty if the BTI Call Option is exercised before the third anniversary of the Effective Date.

The Company’s obligations under the RIFA are secured, subject to customary permitted liens and other agreed upon exceptions and subject to an intercreditor agreement between OFA for the Credit Agreement and RIFA, by a perfected security interest in (i) accounts receivable arising from net sales of BXCL501 products in the U.S. and one or more segregated bank accounts maintained for the purpose of receiving payments in respect of such accounts receivable, (ii) intellectual property that is claiming or covering BXCL501 itself or any method of using, making or manufacturing BXCL501 and (iii) regulatory approvals, clinical data, and all other assets that underlie BXCL501.

The RIFA contains customary representations and warranties and certain restrictions on the Company’s ability to incur indebtedness and grant liens on intellectual property related to BXCL501. In addition, the RIFA provides that if certain events occur, including certain bankruptcy events, failure to make payments, a change of control, an out-license or sale of all of the rights in and to BXCL501 in the U.S., in each case except a permitted licensing transaction (as defined in the RIFA) and, subject to applicable cure periods, material breach of the covenants in the RIFA, OFA, at the direction of the Purchasers, may require the Company to repurchase the Purchasers’ interests in the revenue interest payments at an agreed upon repurchase price.

Tranche B and C of the RIFA are each $45,000 and are available upon satisfaction of certain conditions, including receipt of certain regulatory and patent-related milestones and specified minimum net sales of BXCL501 during any consecutive 12-month period. As of March 31, 2023, $90,000 remained available under the RIFA, subject to achievement of the specified conditions and milestones.

Warrants and Equity Investment Right

In connection with the Credit Agreement, on the Effective Date, the Company granted warrants to the Lenders to purchase up to 278 shares of its common stock (the “BTI Warrants”) at an exercise price of $20.04 per share. The BTI

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Warrants will expire on April 19, 2029, are freely transferable and may be net exercised at the holder’s election. In addition, pursuant to the Credit Agreement, the Lenders have the right to purchase shares of the Company’s common stock after the Effective Date, so long as borrowings under the Credit Agreement are outstanding, for a purchase price of $5,000 at a price per share equal to a 10% premium to the volume-weighted average price of the common stock over the 30 trading days prior to the Lenders’ election to proceed with such equity investment (the “Equity Investment Right”). BTI entered into a registration rights agreement with the Lenders and filed a registration statement on Form S-3 to register the shares issuable upon exercise of the BTI Warrants and, if issued, the shares related to the Equity Investment Right, for resale. The maximum shares of BTI common stock issuable under the BTI Warrants and Lenders’ Equity Investment Right is 5,593.

As part of the Credit Agreement, OnkosXcel granted warrants to the Lenders to purchase 175 individual limited liability company units (which number of units is not in thousands; referred to herein as the “OnkosXcel Warrants”). The strike price of the OnkosXcel Warrants is formulaic based on the value of OnkosXcel at the time of exercise and can only be exercised upon occurrence of an equity related liquidity event for OnkosXcel of at least $20,000. The exercise price per unit of the OnkosXcel Warrants will be set upon the earlier of the closing of the next sale (or series of related sales) by OnkosXcel of equity securities of OnkosXcel with aggregate proceeds of not less than $20,000 to unrelated third parties (the “Next Equity Financing”) at an exercise price per unit equal to a 10% premium over the price per unit of the equity securities sold by OnkosXcel in such Next Equity Financing or, in the event of a sale of OnkosXcel prior to the Next Equity Financing or an initial public offering constituting the Next Equity Financing, the lesser of (x) 75% of the fair value of the consideration to be paid for a unit upon the consummation of such transaction and (y) 150% of the valuation applicable to the initial profits units issued by OnkosXcel after the closing of the Credit Agreement. The OnkosXcel Warrants are transferable with approval from BTI, which cannot be unreasonably withheld, expire on April 19, 2029, and may be net exercised at the holder’s election.

Maturities of long-term debt, excluding the impacts of any mandatory payments pursuant to the Revenue Covenant or to meet minimum royalty levels, are expected to be as follows:

March 31, 2023

    

2023

$

2024

$

2025

$

1,254

2026

$

10,479

2027

$

86,094

Thereafter

$

5,288

Interest expense was as follows:

Three Months Ended

March 31, 

2023

2022

Interest expense

$

3,034

$

7

Accretion of debt discount and amortization of financing costs

333

Total interest expense

$

3,367

$

7

Note 9. Derivative Financial Instruments

BTI identified certain freestanding financial instruments and/or embedded features that require separate accounting from the borrowings under the OFA Facilities. This includes the OnkosXcel Warrants and Equity Investment Right held by the Lenders, along with certain put/call options. The OnkosXcel Warrants and Equity Investment Right do not meet certain scope exceptions under U.S. GAAP, primarily because the exercise prices and number of shares of the Company’s common stock issuable under the instruments are variable, and the instruments meet the definition of a derivative instrument. Therefore, these instruments are recorded as Derivative liabilities in the

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Condensed Consolidated Balance Sheets. The respective derivative liabilities were recorded at fair value on the date of issuance and are revalued on each balance sheet date until such instruments are settled or expire, with changes in the fair value between reporting periods recorded within Other expense, net in the Company’s Condensed Consolidated Statements of Operations.

Note 10. Common Stock Financing Activities

In May 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company could offer and sell shares of its common stock, having an aggregate offering price of up to $100,000, from time to time, through an “at the market offering” program under which Jefferies will act as sale agent. The Company sold 756 shares under the Sale Agreement with Jefferies in the first quarter of 2023 for net proceeds of $23,918, net of offering costs of $739. There were no sales under the Sale Agreement in 2022.

Note 11. Stock-Based Compensation

2017 Equity Incentive Plan

The Company’s 2017 Plan became effective in August 2017. Following the effective date of the Company's 2020 Plan, the Company ceased granting awards under the 2017 Plan, however, the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.

2020 Incentive Award Plan

The Company’s 2020 Plan was approved and became effective at the Company’s 2020 annual meeting of stockholders on May 20, 2020, and unless earlier terminated by the Board of Directors, will remain in effect until March 26, 2030. The 2020 Plan originally authorized for issuance the sum of (i) 911 shares of the Company’s common stock and (ii) 233 shares of the Company’s common stock, which represents the number of shares that remained available for issuance under the 2017 Plan immediately prior to the approval of the 2020 Plan by the Company’s stockholders. Any shares of common stock which, immediately prior to the approval of the 2020 Plan by the Company’s stockholders, were subject to awards granted under the 2017 Plan that are forfeited or lapse unexercised and are not issued under the 2017 Plan will increase the number of shares of common stock available for grant under the 2020 Plan. In addition, the number of shares available for issuance under the 2020 Plan will increase on the first day of each calendar year, beginning January 1, 2021 and ending on and including January 1, 2030, by a number of shares equal to the lesser of (A) 4% of the aggregate number of shares of the Company’s common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares of common stock as determined by the Board of Directors. The shares available for issuance under the 2020 Plan increased by 1,126 shares and 1,119 shares on January 1, 2023 and 2022, respectively.

Stock-based awards granted under the 2020 Plan have a term of ten years. The vesting schedule of all awards granted under the 2020 Plan is determined by the Board of Directors, which is generally four years.

As of March 31, 2023, there were 660 shares available to be granted under the 2020 Plan.

Restricted stock units

The table below summarizes activity relating to BTI RSUs.

Number of

  

shares

Outstanding as of January 1, 2023

 

119

Granted

131

Vested

(25)

Outstanding as of March 31, 2023

225

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During the first quarter 2023, the Company granted 131 time-based RSUs to certain employees. All of the RSUs vest over four years, with 25% vesting at the one-year anniversary of the grant date and the balance vesting ratably over the remaining 12 quarters of the vesting period. The grant date fair value per share for the RSUs was $19.60. Unrecognized stock-based compensation expense related to these awards was approximately $2,539 as of March 31, 2023.

In 2022, the Company granted 122 (119, net of forfeitures) time-based RSUs to certain employees and consultants. The majority of RSUs granted to employees vest over four years, with 25% vesting at the one-year anniversary of the grant date and the balance vesting ratably over the remaining 12 quarters of the vesting period. 25 RSUs granted to employees in May 2022 cliff-vest 100% at the one-year anniversary of the grant date. RSUs granted to a third-party consultant vest 50% on each of the first and second anniversaries of the grant date. The grant date fair value per share for the RSUs granted in March and May 2022 was $15.31 and $10.76, respectively. Unrecognized stock-based compensation expense related to these awards was approximately $1,067 as of March 31, 2023.

OnkosXcel profit sharing units

The table below summarizes activity relating to profits interests (the “profit sharing units” or “PSUs”) associated with OnkosXcel.

Weighted average

Number of

price per unit

  

units

(in whole dollars)

Outstanding as of January 1, 2023

 

1,310

$

5,506

Granted

15

$

10,176

Outstanding as of March 31, 2023

1,325

Vested units as of March 31, 2023

333

$

5,506

During 2022 and the first quarter of 2023, the Company granted 1,325 individual (not in thousands) time-based PSUs related to OnkosXcel to certain employees and consultants of the Company in consideration for services provided to OnkosXcel. The PSUs represent indirect equity interests in OnkosXcel. All PSUs, other than those granted to certain executive employees of the Company, vest ratably over 48 months. PSUs granted to certain executive employees of the Company, vest ratably over 24 months.

The fair values of PSUs granted in the first quarter of 2023 of $8 per unit were estimated at the date of grant using a Black-Scholes option pricing model and assumptions below.

2023 grant profit share unit valuation inputs

Expected volatility

97.4

%

Risk-free rate of interest

3.6

%

Expected dividend yield

%

Expected term

5.8

years

Unrecognized stock-based compensation expense related to these awards was $4,219 at March 31, 2023.

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OnkosXcel restricted stock units

The table below summarizes activity relating to restricted stock units associated with OnkosXcel (the “OnkosXcel RSUs”).

Number of

  

units

Outstanding as of January 1, 2023

 

Granted

225

Outstanding as of March 31, 2023

225

In the first quarter of 2023, the Company granted 225 individual (not in thousands) time-based OnkosXcel RSUs to certain employees and a consultant. 125 of the OnkosXcel RSUs vest upon the earlier to occur of (a) 180 days after an initial public offering of OnkosXcel, or (b) a change in control of OnkosXcel. The remaining OnkosXcel RSUs vest over four years, with 25% vesting at the one-year anniversary of the grant date and the balance vesting ratably over the remaining 12 quarters of the vesting period. The weighted average grant date fair value per unit for the OnkosXcel RSUs was approximately $10. Unrecognized stock-based compensation expense related to these awards was approximately $2,194 as of March 31, 2023.

Stock options

A summary of the Company’s stock option activity for the three months ended March 31, 2023 is presented below.

Number of

Weighted average

  

shares

  

price per share

  

Outstanding as of January 1, 2023

 

4,882

$

17.23

Granted

958

$

19.76

Forfeited

(19)

$

18.02

Cancelled

(4)

$

19.04

Exercised

(173)

$

1.50

Outstanding as of March 31, 2023

5,644

$

18.14

Options vested and exercisable as of March 31, 2023

 

3,112

$

15.28

As of March 31, 2023, the intrinsic value of options outstanding was $36,070. The intrinsic value for stock options is calculated based on the difference between the exercise prices of the underlying awards and the quoted stock price of the Company’s common stock as of the reporting date.

The total intrinsic value of stock options exercised for the three months ended March 31, 2023 was $3,576. No stock options were exercised for the three months ended March 31, 2022. The total intrinsic value of stock options exercisable as of March 31, 2023 and 2022 was $31,617 and $41,577, respectively.

The weighted average grant date fair value per share of options granted during the three months ended March 31, 2023 and 2022 was $15.87 and $12.38, respectively.

The weighted average grant date fair value per share of options vested as of March 31, 2023 was $11.31.

The weighted average remaining contractual life is 5.8 years for options exercisable as of March 31, 2023. The weighted average remaining contractual life was 7.3 years for options outstanding as of March 31, 2023.

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Stock-Based Compensation

The fair value of BTI stock options granted during the three months ended March 31, 2023 and 2022 was estimated using the Black-Scholes pricing model with the following assumptions:

Three months ended

Three months ended

    

March 31, 2023

March 31, 2022

Expected term

5.5

years

-

6.1

years

5.5

years

-

6.1

years

Expected stock price volatility

97.0

%

-

97.9

%

92.7

%

-

96.7

%

Risk-free rate of interest

3.6

%

-

4.2

%

1.5

%

-

2.6

%

Expected dividend yield

0.0

%

-

0.0

%

0.0

%

-

0.0

%

In 2023, the Company began using the historical volatility of its common stock to estimate volatility. Prior to 2023, volatility was estimated using a combination of the historical volatility of publicly traded peer companies and that of the Company’s common stock. The expected term of the awards is estimated based on the simplified method, which calculates the expected term based upon the midpoint of the life 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 dividend yield is zero percent as the Company has no history of paying dividends nor does management expect to pay dividends over the contractual terms of these options. The risk-free interest rates are determined by reference to the U.S. Treasury yield curve in effect at the time of grant, with maturities approximating the expected term of the stock options. The fair value of the underlying common stock is generally determined as the closing price of the Company’s common stock on The Nasdaq Capital Market on the grant date, with consideration of whether there is material nonpublic information that could impact that estimated fair value when it is released.

The Company recognized stock-based compensation expense related to awards issued under the 2017 Plan and the 2020 Plan, as well as the OnkosXcel RSUs and PSUs, of $4,877 and $3,825 for the three months ended March 31, 2023 and 2022, respectively, which were comprised as follows:

Three Months Ended March 31, 

2023

2022

Research and development

    

$

1,297

$

1,001

Selling, general and administrative

 

3,580

2,824

Total

$

4,877

$

3,825

Unrecognized compensation expense related to unvested BTI stock option awards as of March 31, 2023, was $28,849 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 1.9 years.

2020 Employee Stock Purchase Plan

The Company’s 2020 Employee Stock Purchase Plan (the “ESPP”) was also approved and became effective at the Company’s 2020 annual meeting of stockholders on May 20, 2020. The ESPP is designed to assist eligible employees of the Company with the opportunity to purchase the Company’s common stock at a discount through accumulated payroll deductions during successive offering periods. The aggregate number of shares that may be issued pursuant to rights granted under the ESPP is 100 shares of common stock. In addition, the number of shares available for issuance under the ESPP will increase on the first day of each calendar year, beginning on January 1, 2021 and ending on and including January 1, 2030, by a number of shares of common stock equal to the lesser of (a) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by the Board of Directors. The number of shares that may be issued or transferred pursuant to rights granted under the component of the ESPP that is intended to qualify for favorable U.S. federal tax treatment under Section 423 of the Internal Revenue Code (the “Section 423 Component”) shall not exceed 500 shares. The purchase price will be

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determined by the administrator of the ESPP and, for purposes of the Section 423 Component, shall not be less than 85% of the fair value of a share on the first trading day or on the last trading day of the applicable offering period, whichever is lower. The shares available for issuance under the ESPP increased by 281 shares and 280 shares on January 1, 2023 and 2022, respectively. To date, no shares have been sold under the ESPP.

Note 12. Leases

BTI leases office space for its corporate headquarters at 555 Long Wharf Drive, New Haven, Connecticut (the “HQ Lease”) under an operating lease that expires in February 2026. The Company has an option to renew the HQ Lease for one additional five-year term. Payments under the HQ Lease are fixed.

The Company also leases equipment such as copiers and information technology equipment.

The future minimum annual lease payments under operating leases, as of March 31, 2023, are as follows:

Year ending December 31,

    

Amount

Remainder of 2023

$

280

2024

381

2025

391

2026

65

2027

Thereafter

Total lease payments

$

1,117

Less imputed interest

(89)

Total lease liability

$

1,028

Less current portion of lease liability

(325)

Long-term portion of operating lease liability

$

703

The current portion of the Company’s operating lease liability of $325, as of March 31, 2023, is included in Other current liabilities on the Condensed Consolidated Balance Sheets.

Lease expense was $99 and $98 for the three months ended March 31, 2023 and 2022, respectively.

Lease renewal options are not included in the ROU asset or lease liability.

Note 13. Fair Value Measurements

The Company groups its assets and liabilities measured at fair value in three levels based on the nature of the inputs and assumptions used to determine fair value. Refer to Note 3, Summary of Significant Accounting Policies, for additional information on the accounting policies related to fair value.

The carrying amounts of cash and cash equivalents, accounts receivable, net, and accounts payable approximate fair value due to the short-term nature of these instruments. As of March 31, 2023 and December 31, 2022, the Company had $163,036 and $191,022, respectively, primarily in money market funds that hold U.S. government cash equivalent instruments (included in cash and cash equivalents) which were valued based on Level 1 inputs. There were no transfers between levels within the hierarchy during the three months ended March 31, 2023 and the year ended December 31, 2022.

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Derivative liabilities measured at fair value on a recurring basis are summarized below.

Three months ended

March 31, 2023

Fair Value

Level 1

Level 2

Level 3

Total

Derivative liability - Equity Investment Right

$

1,227

$

$

$

1,227

$

1,227

Derivative liability - OnkosXcel Warrants

1,347

1,347

1,347

Total derivative liabilities

$

2,574

$

$

$

2,574

$

2,574

Derivative liabilities are comprised of the OnkosXcel Warrants and Equity Investment Right held by the Lenders. The fair value of the derivative liabilities was determined using Monte Carlo simulation models for the Equity Investment Right, and Binomial Option Pricing and Distribution models for the OnkosXcel Warrants.

The following table presents changes in Level 3 liabilities measured at fair value for the three months ended March 31, 2023. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.

Derivative liabilities

Balance - December 31, 2022

$

2,343

Change in fair value

231

Balance - March 31, 2023

$

2,574

The change from the day one fair value of the derivative liabilities was reported in the Condensed Consolidated Balance Sheets as Derivative liabilities and Condensed Consolidated Statements of Operations as Other expense, net, as of and for the three months ended March 31, 2023.

Inputs used to calculate the estimated fair value of the Equity Investment Right at March 31, 2023 were as follows:

Equity Investment Right

Strike price relative to volume weighted 30-day average

110.0

%

Volatility (annual)

97.4

%

Probability of exercise

90.0

%

Time period

4.0

years

Estimated premium to 30-day average

25.0

%

Discount rate

4.1

%

In estimating the fair value of the derivative liability related to the OnkosXcel Warrants, inputs included third-party fair value estimates of OnkosXcel limited liability company units along with the volatility of those units (which was set at 100% based on the historical volatility of the Company’s stock), and the timing and probability of the relevant capital transactions occurring.

The estimated fair value of the Credit Agreement and RIFA as of March 31, 2023, were $54,698 and $32,416, respectively. Both observable and unobservable inputs were used to determine the fair value of long-term debt, which was classified within the Level 3 category.

The fair value of the BTI warrants issued in 2022, which is a non-recurring fair value, were determined as of the date of issuance using a Black-Scholes pricing model and the fair value of $3,245 was recorded as a component of stockholders’ equity in Additional-paid-in-capital in the Condensed Consolidated Balance Sheets, with the offset recorded as a discount on the amounts funded under the OFA Facilities. This non-recurring measurement is classified as

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Level 3. The inputs used were a strike price of $20.04, the Company’s stock price of $14.93, volatility of 95%, term of 7 years and risk-free rate of 2.95%.

Note 14. Net Loss Per Share

Basic and diluted net loss per share are as follows:

Three Months Ended

    

March 31, 

2023

    

2022

Net loss (numerator)

$

(52,796)

$

(31,472)

Weighted average shares (denominator)

28,616

27,980

Basic and diluted net loss per share

$

(1.84)

$

(1.12)

Potentially dilutive securities outstanding consists of stock options and RSUs. The Company had common stock equivalents outstanding as of March 31, 2023 and 2022 of 5,868 and 4,782 shares, respectively.

Note 15. Commitments and Contingencies

From time to time, in the ordinary course of business, the Company may be subject to litigation and regulatory examinations as well as information gathering requests, inquiries and/or investigations. The Company is not currently subject to any matters where it believes there is a reasonable possibility that a material loss may be incurred. As of March 31, 2023, there were no matters which would have a material impact on the Company’s financial results.

In April 2022, the Company signed a commercial supply agreement that requires minimum annual payments for the first three years of the agreement that in aggregate total $10,000 for the three-year period.

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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 unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below and in the forward-looking statements. Factors that could cause or contribute to these differences include, without limitation, those discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, those listed under “Summary Risk Factors,” and those discussed in the section titled “Risk Factors” included in Part II, Item 1A. of this report. All dollar amounts in the below Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in U.S. dollars, and all dollar and share amounts are presented in thousands, unless otherwise noted or the context otherwise provides.

Overview

BioXcel Therapeutics, Inc. (“BTI” or the “Company”) is a biopharmaceutical company utilizing artificial intelligence (“AI”) approaches to develop transformative medicines in neuroscience and immuno-oncology. We are focused on utilizing cutting-edge technology and innovative research to develop high-value therapeutics aimed at transforming patients’ lives. We employ a proprietary AI platform to reduce therapeutic development costs and potentially accelerate development timelines. Our approach leverages existing approved drugs and/or clinically evaluated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indications. We believe this differentiated approach has the potential to reduce the expense and time associated with drug development in diseases with substantial unmet medical needs.

On April 6, 2022, we announced that the United States (“U.S.”) Food and Drug Administration (“FDA”) approved IGALMITM (dexmedetomidine or “Dex”) sublingual film for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder in adults. IGALMI is approved to be self-administrated by patients under the supervision of a health care provider. We deployed the first phase of our sales team for high priority targets in May 2022. Furthermore, on July 6, 2022, we announced that IGALMI was commercially available in doses of 120 and 180 microgram (“mcg”) through the Company’s third-party logistics provider and was available for order through wholesalers. We completed deployment of the sales team in December 2022, with the integrated team covering the majority of the U.S. agitation market.

Our most advanced clinical development program is BXCL501, an investigational proprietary, orally dissolving film formulation of Dex for the treatment of agitation associated with psychiatric and neurological disorders.

We are conducting clinical trials for the at-home use of BXCL501 for agitation associated with bipolar disorders and schizophrenia. We also continue to conduct clinical trials evaluating BXCL501 for the acute treatment of agitation in patients with Alzheimer’s disease in residential care facilities and nursing homes and for adjunctive treatment of patients with Major Depressive Disorder (“MDD”).

Our advanced immuno-oncology asset, BXCL701, is an investigational, oral innate immune activator currently being developed as a potential therapy for the treatment of aggressive forms of prostate cancer, pancreatic cancer, and other solid and liquid tumors.

We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic and the spread of its variants. To date, we have not experienced any significant delays in any of our ongoing or planned clinical trials, except for occasional COVID-19-related disruptions to our TRANQUILITY II and PLACIDITY trials. However, this could change rapidly.

IGALMI Commercial Progress

IGALMI commercial momentum continues to strengthen, and the market reaction continue to be positive. We have now delivered more than 130 hospital formulary wins since launch, with nearly 600 votes pending. The corporate

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account director team has garnered formulary approval for over 8,000 (approximately 3%) of the targeted integrated delivery network beds with another 69,000 (approximately 25%) pending votes.

Our sales team has now collectively reached over three quarters of our defined hospital targets. The awareness of IGALMI is growing as a result of the deployment of the full 70-person sales team and enhanced marketing efforts.

Our peer influence engagement has educated nearly 1,300 healthcare providers this year, which we expect to more than double over the next two quarters.

Our advertising and media campaign has generated a 70% increase in media impressions between the fourth quarter 2022 and first quarter 2023. The new campaign launched in targeted print media publications such as The American College of Emergency Physicians ACEP Now and Psych Times. Additionally, we deployed geotargeted advertising to reach target health care providers in and around their institutions in order to drive IGALMI demand.

We also launched a consumer-focused website in February 2023 to provide educational resources to both patients and caregivers with an agitation action plan and IGALMI education.

The IGALMI free trial program was also deployed late in the first quarter 2023 with approximately 500 ordering site interactions and early orders already shipped.

We continue to be encouraged by the execution of our marketing plan, receptivity to IGALMI, and improvement of our key performance indicators.

Our Clinical Programs

The following is a summary of the status of our major clinical development programs as of the date of this Quarterly Report on Form 10-Q:

Graphic

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Neuroscience Program

BXCL501 Development

In indications other than approved by the FDA as IGALMI, BXCL501 remains an investigational, proprietary, orally dissolving film formulation of Dex, a selective alpha-2 receptor agonist, targeting symptoms from stress-related behaviors such as agitation. BXCL501 is our most advanced neuroscience clinical program, developed or being evaluated for at-home acute treatment of agitation related to schizophrenia, bipolar disorders, the acute treatment of agitation related to Alzheimer’s disease, and as an adjunctive treatment for MDD in conjunction with the use of Selective Serotonin Reuptake Inhibitors (“SSRIs”) or Serotonin Norepinephrine Reuptake Inhibitors (“SNRIs”) alone.

As a selective adrenergic agent with a sublingual or buccal route of administration, BXCL501 is designed to be easily administered and has shown an onset of action in multiple clinical trials, including clinical trials studying patients with schizophrenia, bipolar disorders, and Alzheimer’s disease. We believe results from these studies suggest that BXCL501 has the potential to reduce agitation without producing excessive sedation. We also believe BXCL501 is highly differentiated from antipsychotics, which often produce unwanted side effects such as excessive sedation or extra pyramidal motor effects, currently used as a standard of care to treat agitation that often produce unwanted side effects such as excessive sedation and extra-pyramidal motor effects. Managing patient agitation in neuropsychiatric and neurodegenerative disorders represents a significant challenge for physicians and caregivers. We believe BXCL501 has the potential to address these challenges while providing an efficient treatment regimen for patients.

BXCL501 Clinical Trials

TRANQUILITY Program

The TRANQUILITY I study of agitation in dementia concluded with a total of four sites enrolling 46 subjects in Part B testing the 40mcg dose versus placebo. The purpose of enrolling this additional cohort was to gather additional evidence supporting dose selection and statistical powering of multiple-site Phase 3 pivotal trials. All patients were able to take the film themselves and properly place it. There were no serious adverse events (“SAEs”) related to the drug, and no falls, loss of consciousness, or syncopal events reported. There were also no local tolerability issues. The adverse events (“AEs”) observed for 40mcg were consistent with those previously observed for 30mcg, 60mcg, and placebo doses. The incidence of individual and categorical AEs for the 40mcg dose were lower than the 60mcg group and similar to the 30mcg dose group.

Efficacy was measured by the change from pre-dose baseline Positive and Negative Syndrome Scale Excitatory Component (“PEC”) total score at two hours, the same primary endpoint utilized in prior pivotal trials of BXCL501. The 40mcg dose showed statistically significant reductions in PEC total score at two hours and demonstrated statistically significant separation from placebo as early as one hour. The magnitude of change in PEC total score was greater for the 40mcg dose than that of 30mcg and somewhat less than the 60mcg dose in previous cohorts. Overall, we believe the 40mcg data support continued evaluation of both 40mcg and 60mcg doses in Phase 3 pivotal trials.

On December 15, 2021, after our initial Breakthrough Therapy designation meetings with the FDA, we announced the initiation of our program to evaluate BXCL501 for the treatment of acute agitation associated with dementia in Alzheimer’s patients. The program’s two studies, TRANQUILITY II and TRANQUILITY III, are designed to evaluate the safety and efficacy of BXCL501 in adults 65 years and older across the range of illness including mild, moderate, and severe illness in assisted living or residential facilities and nursing homes.

The program consists of two randomized, double-blind, placebo-controlled, adaptive, parallel group pivotal trials: TRANQUILITY II and TRANQUILITY III.
Each study will enroll approximately 150 dementia patients 65 years and older. Patients will self-administer 40mcg or 60mcg of BXCL501 or placebo whenever agitation episodes may occur.
TRANQUILITY II has enrolled patients with mild to moderately severe dementia in assisted living or residential care facilities who generally require minimal assistance with activities of daily living. Enrollment

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has been completed, and all patients have completed the study in assisted living facilities and residential care settings. We expect to announce topline data in June 2023.
TRANQUILITY III will enroll patients with moderate to severe dementia who require moderate or greater assistance with activities of daily living. This study has been initiated and the first patient was enrolled in December 2022.
The studies are designed to assess agitation as measured by the changes from baseline in the PEC total score and total Pittsburgh Agitation Scale scores. For both studies, the primary efficacy endpoint will be the change in PEC total score from baseline measured at two hours after the initial dose.
Patients who complete TRANQUILITY II or TRANQUILITY III will be eligible to enroll in an open label, 52-week safety study designed to describe the safety and efficacy of BXCL501 in continued use. This study is expected to initiate in the second quarter of 2023.

Bipolar or Schizophrenia-related Agitation (At-Home Use)

We met with the FDA in July 2022 to discuss the design of a registrational study to support potential expansion of BXCL501 for at-home use for the acute treatment of agitation related to schizophrenia and bipolar disorders. We believe we have alignment with the FDA on key design features with respect to our SERENITY III study, which will consist of two parts. The first part is comparable to the pivotal SERENITY I and II studies. Using similar inclusion and exclusion criterion under a well-controlled in-patient setting, acutely agitated patients with schizophrenia or bipolar disorders will be randomized to self-administer either 60mcg of BXCL501 or placebo, in a double-blind placebo-controlled trial. The primary endpoint will be efficacy as measured by the PEC total score change from baseline at two hours post-dose. The secondary objective will be safety and tolerability. The first part of SERENITY III initiated with the first patients dosed in December 2022. Part 1 enrollment has been completed with topline results expected in May 2023. Part 2 of the study is expected to initiate in the second quarter of 2023. The primary objective of the second part of the study is to assess the safety of a 60mcg dose when self-administered in an at-home setting. Patients with schizophrenia or bipolar disorders and a history of agitation will be randomized to self-administer 60mcg of BXCL501, or placebo, when they experience an episode of agitation in an at-home setting over a period of three months. Patients will return for regularly scheduled outpatient visits where investigators will review information collected from patients and reliable informants to determine and characterize any adverse effects.

Major Depressive Disorder (“MDD”)

We are also evaluating BXCL501 as an adjunctive treatment for MDD. The initial clinical study in this program is a double-blind, placebo-controlled, multiple ascending dose trial to evaluate the safety and tolerability of daily doses of BXCL501 in healthy volunteers. We expect to report topline results in May 2023. Seven dosing cohorts of healthy adult volunteers have been completed, including cohorts receiving 30mcg, 60mcg, 80mcg, or 120mcg BXCL501 (or placebo) once daily for seven days, and with cohorts receiving twice-a-day dosing of 30mcg in the morning and 60mcg in the evening (or placebo). Another cohort of subjects received 40mcg in the morning and 80mcg in the evening (or placebo). A final cohort tested 60mcg in the morning and 80mcg in the evening (or placebo) plus twice daily 30 milligrams (“mg”) duloxetine in the morning and evening. BXCL501 has been generally well tolerated across completed cohorts. We anticipate that the safety and tolerability results of this study will enable dose selection for a Phase 2 proof-of-confidence trial in MDD.

Pediatric Study

In June 2021, we initiated a global clinical trial designed to evaluate the safety and efficacy of BXCL501 in the acute treatment of agitation associated with pediatric schizophrenia and bipolar disorders, in part to fulfill pediatric study requirements agreed to with the FDA in connection with IGALMI’s approval. The trial protocol has been reviewed by the FDA, as well as by the European Medicines Agency, to fulfill potential commitments to study the effects of BXCL501 in pediatric patients ages 13 to 17 with schizophrenia and ages 10 to 17 with bipolar disorders. Enrollment of patients with schizophrenia, schizoaffective disorder, bipolar I, and bipolar II disorder is ongoing i