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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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Commission File Number: 001-38410

BioXcel Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

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(475) 238-6837

(Registrant’s telephone number, including area code)

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N/A

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

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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 ◻

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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 ◻

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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.

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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. ⌧

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

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The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at November 1, 2020 was 24,368,357.

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FORWARD-LOOKING STATEMENTS

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

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. Factors that may cause actual results to differ materially from current expectations include, among other things, 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. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms “we,” “our,” “us,” the “Company” or “BTI” refer to BioXcel Therapeutics, Inc. and its subsidiaries, and “BioXcel” or “Parent” refer to the Company’s parent company, BioXcel LLC and its predecessor, BioXcel Corporation. All brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

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 sections 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 section of ours website at www.bioxceltherapeutics.com.

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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 ordinary shares. The principal risks and uncertainties affecting our business include the following:

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

BIOXCEL THERAPEUTICS, INC.

BALANCE SHEETS

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

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

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BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS

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

(unaudited)

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

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BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands, except shares)

(unaudited)

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

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BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

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

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BIOXCEL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS

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

(unaudited)

Note 1. Organization and Principal Activities

BioXcel Therapeutics, Inc. is a clinical stage biopharmaceutical company focused on drug development that utilizes artificial intelligence to identify improved therapies in neuroscience and immuno-oncology. BTI's drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. BTI's two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation and opioid withdrawal symptoms, and BXCL701, an orally administered, systemic innate immune activator for the treatment of aggressive forms of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

As used in these financial statements, unless otherwise specified or the context otherwise requires, the terms the “Company” or “BTI” refer to BioXcel Therapeutics, Inc., and “BioXcel” or “Parent” refer to BioXcel LLC and, its predecessor, BioXcel Corporation.

The Company is a minority-owned subsidiary of BioXcel and was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is in New Haven, Connecticut.

The unaudited financial information for the three and nine months ended September 30, 2020 and 2019 is presented on the same basis as the financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The Company does not have any components of other comprehensive income (loss) recorded within its financial statements, and, therefore, does not separately present a statement of comprehensive income (loss) in its financial statements.

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

COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of coronavirus, a global pandemic. This outbreak has caused and is continuing to cause major disruptions to businesses and financial markets worldwide. This may affect the Company’s operations and those of third parties on which the Company relies, including causing disruptions in the supply of the Company’s product candidates and the conduct of current and planned preclinical and clinical studies. The Company may need to limit its operations and may experience limitations in employee resources. There are risks that the COVID-19 pandemic may be more difficult to contain than currently anticipated in which case the risks described herein could increase significantly. The extent to which the COVID-19 pandemic impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the coronavirus on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity, and the Company’s ability to complete its preclinical and clinical studies on a timely basis, or at all. The ultimate impact of COVID-19 is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing, preclinical and clinical trial activities or the global economy as a whole. However,

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these effects could have a material, adverse impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

Note 2. Basis of Presentation

The accompanying unaudited financial statements do not include all of the information and footnotes required by GAAP. The accompanying year-end balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the three and nine months ended September 30, 2020 and 2019, respectively. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods or any future year or period. The accompanying unaudited financial statements of the Company should be read in conjunction with the audited financial statements and notes as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2020.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and notes thereto. The Company believes that its existing cash and cash equivalents will be sufficient to cover its cash flow requirements for at least the next twelve months from the issuance of these financial statements. However the Company’s future requirements may change and will depend on numerous factors.

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Note 3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of our financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity and expenses. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of expenses.

During the nine months ended September 30, 2020, the novel coronavirus disease, or COVID-19, was declared a pandemic and spread across the globe, including the United States and Europe. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, reserves and allowances, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

We have evaluated the impact of COVID-19 within our financial statements and given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity. The financial statements do not reflect any adjustments as a result of the pandemic but there may be changes to the current estimates in future periods.

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Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of September 30, 2020, cash equivalents were comprised of money market funds. Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts. We believe we mitigate such risk by investing in or through major financial institutions.

Offering Costs

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

Effective September 22, 2019, the Company terminated its At-The-Market (“ATM”) program. All costs associated with this program have been amortized and charged to additional paid-in-capital.

Property and Equipment

Equipment consists of computers and related equipment that are stated at cost and depreciated using the straight-line method over estimated useful life of 3-5 years. Furniture is being depreciated using the straight-line method over approximately 7 years. Leasehold improvements are being amortized over the shorter of the life of the lease or the asset.

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

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

Leases

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

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

The Company adopted ASU 2016-02 Lease Accounting Topic 842 in January 2019 and recorded a ROU asset and related liability in the amount of $1,308 on commencement of a new office lease.

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Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options. The Company’s 2017 Equity Incentive Plan (the “2017 Stock Plan”) became effective in August 2017. The Company’s 2020 Incentive Award Plan (the “2020 Stock Plan”) became effective in May 2020. Following the effective date of the Company’s 2020 Incentive Award Plan, the Company ceased granting awards under the 2017 Equity Incentive Plan; however the terms and conditions of the 2017 Equity Incentive Plan continue to govern any outstanding awards granted thereunder.

Both BioXcel and the Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized as expense over the requisite service period. The Company utilizes the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black Scholes model requires the use of assumptions which determine the fair value of the stock-based awards. Determining the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term of the stock options, the expected volatility of our stock and expected dividends. Stock awards granted by the Company subsequent to its March 2018 initial public offering (“IPO”) are valued using market prices at the date of grant. Significant judgement and estimates were used to estimate the fair value of these awards, as the shares of common stock underlying these awards were not then publicly traded. The Company has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

The Company adopted FASB ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting as of January 1, 2019 which allows non-employee options to be expensed using the adoption date fair value.

Research and Development Costs

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

Expenses Accrued Under Contractual Arrangements

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period, which is based on an established protocol specific to each clinical trial. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed

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relative to the actual status and timing of services performed may vary and may result in us 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 as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.

Fair Value Measurements

ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:

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

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

Net Loss per Share

The Company computes basic earnings (loss) per share (“EPS”) by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. Securities that could potentially dilute EPS in the future were not included in the

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computation of EPS because to do so would be antidilutive. The calculations of basic and diluted net loss per share are as follows:

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Potentially dilutive securities outstanding consists solely of stock options. The Company had stock options outstanding to purchase 3,833,501 and 3,092,122 shares of common stock as of September 30, 2020 and 2019, respectively.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The ASU is effective for fiscal years beginning after December 15, 2020. The Company does not expect that the adoption of this new guidance will have a material impact on the Company’s Financial Statements.

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Note 4. Transactions with BioXcel

The Company has entered into the Amended and Restated Asset Contribution Agreement, pursuant to which BioXcel agreed to contribute BioXcel’s rights, title and interest in BXCL501, BXCL701, BXCL502 and BXCL702, and all of the assets and liabilities associated in consideration for (i) 9,480,000 shares of our common stock, (ii) $1,000 upon completion of an initial public offering, (iii) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the bridging bioavailability/ bioequivalence study for the BXCL501 program, (iv) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the Phase 2 proof of concept open label monotherapy or combination trial with Keytruda for the BXCL701 program and (v) a one-time payment of $5,000 within 60 days after the achievement of $50,000 in cumulative net sales of any product or combination of products resulting from the development and commercialization of any one of the Candidates or a product derived therefrom. With the completion of the Company’s IPO in March 2018, $1,000 was charged to Research and Development costs in connection with (ii) above and was paid on April 5, 2018. The Company paid $500 to BioXcel in connection with (iii) above in April 2019. In July 2019, the Company completed the first dosing of a patient in the combination trial of BXCL701 with Keytruda, and as a result the Company paid $500 to BioXcel in connection with (iv) above in July 2019.

The Company entered into a Separation and Shared Services Agreement with BioXcel that took effect on June 30, 2017, as amended and restated on November 7, 2017 and March 6, 2020, or the Services Agreement, pursuant to which BioXcel will allow us to continue to use the office space, equipment, services and leased employees based on the agreed upon terms and conditions for a payment of defined monthly and/or hourly fees. The office space and equipment portion of the Services Agreement ended effectively on April 30, 2018 when the Company moved to new office space to accommodate additional personnel that had been hired. Services provided by BioXcel through its subsidiaries in India and the United States will continue indefinitely, as agreed upon by the parties. These services are primarily for drug discovery and for chemical, manufacturing and controls cost. Service charges recorded under this agreement were $270 and $173 for the three months ended September 30, 2020 and 2019, respectively. Service charges recorded under this agreement were $926 and $689 for the nine months ended September 30, 2020 and 2019, respectively.

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Under the Services Agreement, the Company has an option, exercisable until December 31, 2020, to enter into a collaborative services agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing EvolverAI. The parties are obligated to negotiate the collaborative services agreement in good faith and to incorporate reasonable market-based terms, including consideration for BioXcel reflecting a low, single-digit royalty on net sales and reasonable development and commercialization milestone payments, provided that (i) development milestones shall not exceed $10 million in the aggregate and not be payable prior to proof of concept in humans and (ii) commercialization milestones shall be based on reaching annual net sales levels, be limited to 3% of the applicable net sales level, and not exceed $30 million in the aggregate. BioXcel shall continue to make such product identification and related services available to us for at least five years from June 30, 2017. The parties are currently discussing extending the product identification and related services that BioXcel would provide under the collaborative services agreement, however, as of the date hereof, we have not reached a definitive agreement.

The Company paid $9,024 in February 2020 for the purchase and subsequent cancellation of 300,000 shares owned by BioXcel, which is more fully discussed below under Note 7 to these financial statements.

Note 5. Property & Equipment

Property and Equipment, net consisted of the following

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Note 6. Accrued Expenses and Other Current Liabilities

Accrued expenses consist of the following:

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Other current liabilities as of September 30, 2020 includes $210 for the current portion of operating lease liabilities and $468 for the financing of insurance premiums.

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Note 7. Stockholders’ Equity

Authorized Capital

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

The Company is authorized to issue up to 50,000,000 shares of common stock with a par value of $0.001 per share. The Company had 24,354,882 and 18,087,382 shares of common stock outstanding as of September 30, 2020 and December 31, 2019, respectively.

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Description of Common Stock

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

Common Stock Issuances

On May 20, 2019, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company may offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having an initial offering price no greater than $20.0 million (the “Shares”), from time to time, through an “at the market offering” program under which Jefferies will act as sales agent. The Company sold 66,193 shares under the Sale Agreement for proceeds of $387, net of issuance costs of $350. The Sale Agreement was terminated by the Company on September 22, 2019.

On September 26, 2019, the Company entered into an underwriting agreement with several underwriters in connection with the issuance and sale by the Company in a public offering of 2,303,030 shares of the Company’s common stock at a public offering price of $8.25 per share, less underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-230674) and a related prospectus supplement filed with the SEC (the “September 2019 Offering”). The September 2019 Offering closed on September 30, 2019. The Company received proceeds of approximately $17,423, net of issuance costs of $1,577 from the September 2019 Offering.

In February 2020, the Company sold in a registered offering 2,300,000 shares of its common stock at a public offering price of $32.00 per share for gross proceeds of $73,600 less underwriting discounts and commissions. The Company received proceeds of approximately $68,811, net of issuance costs of $4,789. The Company used $9,024 of the proceeds to purchase and cancel 300,000 shares of common stock from BioXcel.

In July 2020, the Company sold in a registered offering 4,000,000 shares of its common stock at a public offering price of $50.00 per share for gross proceeds of $200,000 less underwriting discounts and commissions. The Company received proceeds of approximately $187,008, net of issuance costs of $12,992. Under the terms of the Underwriting Agreement entered into by the Company in connection with the July 2020 offering, certain stockholders of the Company granted the underwriters an option exercisable for thirty days to purchase up to an additional 600,000 shares of common stock at the public offering price less underwriting discounts and commissions. The Company did not receive any of the proceeds from any sale of shares in the offering by such stockholders. The Company intends to use the net proceeds of the offering to fund ongoing clinical trials, commercialization preparation and for general corporate purposes.

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Note 8. Stock-Based Compensation

Stock Options

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

The Company’s 2020 Stock Plan was approved and became effective at the Company’s 2020 annual meeting of Shareholders on May 20, 2020. The 2020 Stock Plan authorizes for issuance the sum of (i) 911,000 shares of the Company’s common stock authorized for issuance and 231,941 shares of the Company’s common stock which represents the number of shares that remained available for issuance under the 2017 Stock Plan immediately prior to the approval of the 2020 Stock Plan by the Company’s shareholders. Any shares of Common Stock which, as of immediately prior to the approval of the 2020 Stock Plan by the Company’s shareholders, are subject to awards granted under the 2017 Stock Plan that are forfeited or lapse unexercised and are not issued under the 2017 Stock Plan will increase the number of shares of common stock available for grant under the 2020 Stock Plan. In addition, the number of shares available for issuance under the 2020 Stock 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

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aggregate number of shares of the Company’s common stock outstanding of the immediately preceding calendar year and (B) such smaller number of shares of common stock as is determined by the Board of Directors.

The Company’s 2020 Employee Stock Purchase Plan (“ESPP”) was also approved and became effective at the Company’s 2020 annual meeting of Shareholders 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 100,000 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. 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 500,000 shares. The purchase price will be determined by the administrator of the ESPP and, for purposes of the Section 423 Component, shall not be less than 85% of the fair market value of a share on the first trading day or on the last trading day of the applicable offering period, whichever is lower. To date, no shares have been sold under the ESPP.

As of September 30, 2020, there were 4,018,547 shares of the Company’s common stock authorized for issuance under the 2017 Stock Plan and the 2020 Stock Plan (collectively, the “Stock Compensation Plans”). Options granted under the Stock Compensation Plans have a term of ten years with vesting terms determined by the board of directors, which is generally four years.

As of September 30, 2020, there were 185,046 shares available to be granted under the 2020 Stock Plan.

The fair value of options granted during the nine months ended September 30, 2020 was estimated using the Black-Scholes option-pricing model with the following assumptions.

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Prior to the Company’s IPO, it did not have a history of market prices of its common stock and, as such, volatility was estimated using historical volatilities of similar public companies. The expected term of the options granted to employees is estimated based on the simplified method, which calculates the expected term based upon the midpoint of the term of the award and the vesting period. The Company uses the simplified method because it does not have sufficient option exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term of options granted to non-employee service providers represents the contractual term of the option. The expected dividend yield is 0% as the Company has no history of paying dividends nor does management expect to pay dividends over the contractual terms of these options. The risk-free interest rates are based on the United States Treasury yield curve in effect at the time of grant, with maturities approximating the expected term of the stock options.

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The following table summarizes information about stock option activity under the Stock Compensation Plans for the nine months ended September 30, 2020 (in thousands, except share and per share data):

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The Company recognized stock-based compensation expense under the Stock Compensation Plans of $7,979 and $2,427 for the nine months ended September 30, 2020 and 2019, respectively.

The total grant-date fair value of options was $35,848 for the nine months ended September 30, 2020.

As of September 30, 2020, the total compensation expenses not yet recognized in the financial statements is approximately $35,424, and the weighted average period over which it is expected to be recognized is 1.7 years.

BioXcel Charges

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

Stock-based compensation expense, net of forfeitures, recognized by the Company in its statements of operations related to BioXcel equity awards totaled approximately $21 and $61 for the nine months ended September 30, 2020 and 2019, respectively.

Total stock-based compensation charges were approximately $8,000 and $2,488 for the nine months ended September 30, 2020 and 2019, respectively. The Company charged $3,587 and $4,413 to research and development and general and administrative expense for the nine months ended September 30, 2020. The Company charged $1,449 and $1,039 to research and development and general and administrative expense for the nine months ended September 30, 2019.

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Note 9. Leases

In August 2018, the Company entered into an agreement to lease approximately 11,040 square feet of space on the 12^th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12^th Floor Lease) which was effective February 22, 2019. The 12^th Floor Lease expires in February 2026.

In August 2020, the Company entered into an amendment to the 12^th Floor Lease wherein the Company leased an additional 7,245 square feet of space on the 12^th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12^th Floor Lease Amendment”). The 12^th Floor Lease Amendment expires in February 2026.

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The future minimum annual lease payments under these operating leases as of September 30, 2020 are as follows:

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The current portion of the Company’s operating lease liability of $210 as of September 30, 2020 is included in other current liabilities on the balance sheet.

The Company recorded lease expense of $237 and $155 related to its operating lease right-of-use asset for the nine months ended September 30, 2020 and 2019, respectively.

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

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Note 10. Borrowing

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The Company received funds under the Paycheck Protection Program of the CARES Act in April 2020 in the amount of $537. The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. On April 23, 2020, the Small Business Administration issued a new FAQ #31, which provided guidance on what it means to certify that: “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Following review of this new FAQ #31 the Company decided to withdraw from the Paycheck Protection Program and has repaid the loan in full together with all accrued interest.

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Note 11. Income Taxes

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

As a result of the Company’s cumulative losses, management has concluded that a full valuation allowance against the Company’s net deferred tax assets is appropriate. No income tax liabilities existed as of September 30, 2020 and December 31, 2019 due to the Company’s continuing operating losses.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 temporarily modifies the federal income tax rules on net operating losses incurred in 2018, 2019, and 2020. Under the CARES Act, a taxpayer that incurs in 2020 or has incurred during 2019 or 2018 a net operating loss (“NOL”) is permitted to carryback such NOL to the prior five years to offset prior year income to claim a tax refund of previously paid federal income taxes.  As a result of the Company’s losses since inception it would not benefit from this provision.   The CARES Act retroactively suspends the 80% income limitation on use of NOL carryovers for taxable years beginning before January 1, 2021 and allows for 100% of any such taxable income to be offset by the amount of such NOL carryforward.  This 80% income limitation is reinstated for tax years beginning after December 31, 2020. 

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Note 12. 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 September 30, 2020, there were no matters which would have a material impact on the Company’s financial results.

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Note 13. Subsequent Event

The Company previously entered into a Clinical Trial Collaboration Agreement (the “Collaboration Agreement”) with Nektar Therapeutics, a Delaware corporation, on September 21, 2018 (“Nektar”), pursuant to which the parties had agreed to jointly collaborate to conduct a Phase 1/2 clinical trial evaluating a combination therapy using BXCL701 as a potential therapy for pancreatic cancer and such other clinical trials evaluating the combined therapy as agreed by the parties. The BXCL701 phase of the triple combination study of BXCL701 was planned to initiate following Nektar and Pfizer’s Phase 1B dose-escalation trial, which was delayed. As a result, the parties agreed to discontinue activities on the triple combination study and instead reallocate resources to other studies and development programs, and the parties terminated the Collaboration Agreement, effective November 10, 2020.

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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 financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, such as information with respect to our plans and strategy for our business and expectations related to the clinical development of our product candidates, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Summary Risk Factors” and “Risk Factors” sections of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

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

Overview

We are a clinical stage biopharmaceutical company focused on drug development that utilizes artificial intelligence to identify improved therapies in neuroscience and immuno-oncology. Our drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. We believe that this differentiated approach has the potential to reduce the cost and time of drug development in diseases with substantial unmet medical need.

Our two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation and opioid withdrawal symptoms, and BXCL701, an orally administered systemic innate immune activator for the treatment of aggressive forms of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

During the first quarter ended March 31, 2020 and continuing through September 30, 2020, the novel coronavirus disease, or COVID-19, was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.

During the first quarter of 2020 we took steps in line with guidance from the U.S. Centers for Disease Control and Prevention (“CDC”) and the State of Connecticut to protect the health and safety of our employees and the community. In particular, we implemented a work-from-home policy for all employees and have restricted on-site activities to certain chemical, manufacturing and control (“CMC”) and clinical trial activities. We continue to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the operations of our business. Beginning late in the second quarter of 2020 we began to slowly bring our staff, in very limited numbers, back to our office. This modified return-to- work approach is expected to continue through at least December 31, 2020. We have taken steps to protect our workforce and have instituted strict work rules to protect our employees.

We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic. We remain committed to our clinical programs and development plans. Through September 30, 2020, we have not experienced any significant delays to our ongoing or planned clinical trials, except for challenges in accessing elderly care facilities; however, this could rapidly change.

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Clinical Development Programs

The following is a summary of the status of our clinical development programs as of September 30, 2020:

BXCL501 Neuroscience Program

BXCL501 is an investigational, proprietary, orally dissolving, sublingual thin film formulation of Dex, a selective alpha-2a receptor agonist, for the treatment of agitation and opioid withdrawal symptoms. BXCL501 is our most advanced neuroscience clinical program, being developed initially for the treatment of acute agitation in patients with schizophrenia and bipolar disorders. As a selective adrenergic agent with an orally-dissolving, sublingual thin film route of administration, BXCL501 is designed to be easy to administer and has demonstrated efficacy and safety with a rapid onset of action in multiple clinical studies. BXCL501 is designed with the potential to generate a calming effect without producing excessive sedation. We believe that BXCL501 is highly differentiated from antipsychotics currently used as standard of care, which often produce unwanted side effects such as excessive somnolence and extra-pyramidal motor effects. Managing patient agitation in neuropsychiatric and neurodegenerative disorders represents a significant challenge for physicians and caregivers, and we believe that BXCL501 has the potential to address these challenges while providing an efficient treatment regimen for patients.

SERENITY I and SERENITY II

In July 2020, we announced topline results from the SERENITY I and II pivotal trials, highlighting BXCL501’s robust efficacy and favorable safety profile in reducing agitation in schizophrenia and bipolar disorder 1 and 2 patients. In October 2020, we had a planned pre-New Drug Application (“NDA”) meeting with the U.S. Food and Drug Administration (“FDA”) to discuss the content and format of our anticipated NDA submission. The FDA also agreed to a rolling review of our NDA, allowing us to submit completed sections of the application early. We have already submitted part of the NDA to the FDA, which included non-clinical and product brand name content, and plan to submit the complete application in the first quarter of 2021.

We believe that the robust data set from our SERENITY trials establishes a solid foundation for ongoing and future indications.

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TRANQUILITY

In August 2020, we initiated a third dose cohort, 90 mcg, in the TRANQUILITY study, a randomized, double-blind, placebo-controlled, ascending dose adaptive Phase 1b/2 trial of BXCL501 for the acute treatment of agitation associated with geriatric dementia. Based on the findings, we expect to report topline results in the fourth quarter of 2020, or, if deemed appropriate, proceed to an additional dose cohort.

TRANQUILITY is a foundational study and we believe it will inform a broader clinical development program in dementia with the goal to address the full spectrum of agitation ranging from acute to chronic.

RELEASE

In August 2020, we announced that the third dose cohort (90 mcg twice a day, 12 hours apart) was currently enrolling in the RELEASE trial. This is a multicenter, randomized, double-blind, placebo-controlled, ascending dose Phase 1b/2 trial designed to evaluate the safety, pharmacokinetics, tolerability, and efficacy of BXCL501 in patients experiencing symptoms of opioid withdrawal. We expect to report topline results from the study in the first quarter of 2021.

Agitation Associated with Delirium

In October 2020, we announced that we had received clearance of our Investigational New Drug (“IND”) Application from the FDA for treatment of agitation associated with delirium. We are preparing to initiate a Phase 2 clinical trial evaluating BXCL501 in patients with agitation associated with delirium in intensive care units (“ICU”), including COVID-19 patients, within the next several months. This indication offers potential synergy with the medical and commercial infrastructure being developed to support our first two indications.

Agitation associated with delirium is a serious condition that affects patients in many hospital settings: ICUs, surgical & medical wards, and emergency departments. Currently, there are no FDA-approved medications for delirium or agitation associated with it.

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Additional Opportunities

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In addition, we are continuing our development of BXCL501, exploring this candidate as a potential treatment option for chronic agitation associated with dementia. We are also developing a single-use intramuscular injection for patients with severe agitation (non-cooperative).

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Relative Bioavailability Study

In the third quarter of 2020, we analyzed the data from a cross-over study in healthy volunteers comparing the bioavailability of BXCL501 administered sublingually with the film placed drug-side down under the tongue, compared to the film placed drug- side up under the tongue, and administered buccally (placed between the lower lip and gum). Results of this study indicated that:

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Preparing for Potential Commercial Launch

We are assembling a leadership team with significant industry experience to prepare for a potential commercial launch of BXCL501. In June 2020, we announced the hiring of our Chief Commercial Officer and our Chief Development Officer. We continue to expand our core medical and commercial teams in order to build the corporate framework needed for the potential commercialization of BXCL501.

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BXCL701 Immuno-Oncology Program

BXCL701 is a potential first-in-class, highly potent, oral, small molecule immunomodulator designed to stimulate both the innate and acquired immune systems by inhibiting dipeptidyl peptidases (“DPP 8/9”). DPP 8/9 behave as "checkpoints" of the innate immune system. We believe that BXCL701 may establish a differentiated immuno-oncology platform by modulating multiple steps in the cancer immunity cycle and, when combined with checkpoint inhibitors and/or immune activating agents, may be able to convert immuno-resistant tumors to immuno-sensitive tumors (“cold” to “hot” tumors).

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BXCL701 currently has two ongoing combination therapy clinical trials:

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In April 2020, we announced the initiation of the Phase 2 efficacy portion of the Phase 1b/2 trial of BXCL701 in combination with KEYTRUDA^® (pembrolizumab, a PD-1 inhibitor) for treatment emergent Neuroendocrine Prostate Cancer (tNEPC). The Phase 1b safety assessment of BXCL701 indicated that a split dose totaling 0.6 mg per day is the recommended dose when used in combination with KEYTRUDA. In addition to the efficacy cohort in NEPC patients, in August 2020, we opened a separate cohort for castration-resistant prostate cancer (“CRPC” - adenocarcinoma) patients who have failed taxane-based chemotherapy and up to two lines of second generation androgen pathway blockers. The 1b portion of this trial was recently presented at the Society for Immunotherapy of Cancer’s 35th Anniversary Annual Meeting (SITC.

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The MD Anderson-led Phase 2 open-label basket trial was designed to evaluate the response rate of orally administered BXCL701, combined with KEYTRUDA, in two arms: Arm A is enrolling checkpoint naïve patients (where checkpoint therapy is indicated: “hot tumors”); and arm B is enrolling patients who have progressed following checkpoint therapy alone. As of August 2020, the efficacy bar had been met for both arms, allowing the trial to advance to completion. Preliminary data was recently presented at SITC.

The BXCL701 phase of the triple combination study of BXCL701, bempegaldesleukin (NKTR-214, Nektar Therapeutics, Inc. (“Nektar”)) and BAVENCIO® (avelumab, Merck KGaA, Darmstadt, Germany and Pfizer) in second line pancreatic cancer was planned to initiate following Nektar and Pfizer’s Phase 1B dose-escalation trial of bempegaldesleukin and avelumab, which was delayed. All parties have agreed to discontinue activities on the triple combination study and instead reallocate resources to other studies and development programs, and the Clinical Trial Collaboration Agreement, dated September 21, 2018, between the Company Nektar (the “Nektar Collaboration Agreement”) was terminated effective November 10, 2020.

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Intellectual Property

In July 2020, we announced that we had received a Notice of Allowance from the U.S. Patent and Trademark Office for patent application No. 16/453,679 related to BXCL501, our proprietary sublingual thin-film formulation of Dex. U.S. Pat. No. 10,792,246 was issued on October 6, 2020 and has a term that is set to expire no earlier than 2039. We plan to list the U.S. patent in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book.

As of November 1, 2020, our patent portfolio included 6 Patent Cooperation Treaty applications, 6 U.S. utility applications, 1 issued U.S. utility patent, 15 U.S. provisional patent applications, 43 non-U.S. applications, and 18 design patent applications, one of which is a U.S. design application.  

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Basis of Presentation

The Company’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). All amounts are presented in thousands.

Components of Our Results of Operations

Revenues

We have not recognized any revenue since inception.

Operating Costs and Expenses

Research and Development

Our research and development expenses reflect costs incurred for the research and development of our clinical and pre-clinical product candidates, which includes payments to BioXcel, our Parent. Research and development expense primarily consist of salary, benefits and non-cash stock-based compensation for our research and development personnel, costs incurred under agreements with contract research organizations, (“CROs”), and sites that conduct our non-clinical studies and clinical trials, costs of outside consultants engaged in research and development activities, including their fees, stock-based compensation and travel expenses, the cost of acquiring, developing and manufacturing pre-clinical and clinical trial materials and lab supplies, and depreciation and other expenses.

We expense research and development costs to operations as incurred.

Our research and development costs by program for the nine months ended September 30, 2020 and 2019 were as follows:

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General and Administrative

General and administrative expenses primarily consist of salaries, benefits and non-cash stock-based compensation for our executive and administrative personnel. General and administrative expenses also include legal expenses to pursue patent protection of our intellectual property, professional fees for audit and tax and insurance charges.

We expect that our general and administrative expenses will increase as we expand our clinical programs. We also expect increased administrative costs resulting from our clinical trials and the potential commercialization of our product candidates. We believe that these increases will likely include increased costs for director and officer liability insurance, hiring additional personnel to support future market research and future product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We may also incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures and similar requirements applicable to public companies.

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Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 3 to the financial statements included in this Quarterly Report on Form 10-Q.

Summary of Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

Revenues

We have not recognized any revenues since inception.

Research and Development Expense

Research and development expenses for the three months ended September 30, 2020 and 2019 were $16,317 and $7,122, respectively. Research and development expenses for the three months ended September 30, 2020 and 2019 were comprised as follows:

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The increase of $9,195 for the three months ended September 30, 2020 is primarily attributable to:

Personnel and recruiting costs increased due to our efforts to enlarge our clinical team as we expanded our clinical programs during the quarter and in preparation of the potential commercial launch of BXCL501 in the U.S.

Non-cash stock-based compensation also increased as result of the additional personnel hired during the year and increased grant date fair values arising from higher market prices of the Company’s common stock.

The increase in professional research & project related costs and clinical trials expense reflect the acceleration of research and development activities is primarily related to our SERENITY I and II clinical trials as well as increased costs associated with our TRANQUILITY and RELEASE clinical trials for BXCL501. These amounts were offset by reduced costs related to our BXCL501 Phase Ib schizophrenia trial and our BXCL701 pancreatic cancer trial.

Drug acquisition costs incurred during the three months ended September 30, 2019 related to a payment triggered pursuant to our Amended and Restated Asset Contribution Agreement with our Parent as discussed in Note 4 to the financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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General and Administrative Expense

General and administrative expenses for the three months ended September 30, 2020 and 2019 were $8,451 and $2,012, respectively. General and administrative expenses for the three months ended September 30, 2020 and 2019 were comprised as follows:

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The increase of $6,439 for the three months ended September 30, 2020 is primarily attributable to:

Increased personnel and recruiting costs due to our continuing efforts to expand our teams in preparation of the potential commercial launch of BXCL501 in the U.S.

Non-cash stock-based compensation also increased as result of the additional personnel and increased grant date fair values arising from higher market prices of the Company’s common stock.

Professional and insurance fees increased due to the expanding growth of our operations, increased corporate legal and investor relations fees and increased insurance costs primarily related to an increase in Director and Officer liability premiums.

In September 2020, we were the victim of an email-based wire fraud, which led to a misappropriation of approximately $1,927. We subsequently recovered $774 of this amount and are continuing efforts to recoup the remainder of the funds. As such, $1,153 is included and Travel and other costs.

Comparison of the Nine Months Ended September 30, 2020 and 2019

Revenues

We have not recognized any revenues since inception.

Research and Development Expense

Research and development expenses for the nine months ended September 30, 2020 and 2019 were $46,595 and $19,302, respectively. Research and developments for the nine months ended September 30, 2020 and 2019 were comprised as follows:

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The increase of $27,293 during the nine months ended September 30, 2020 is primarily attributable to:

Increased personnel and recruiting costs due to our continuing efforts to expand our teams in preparation of the potential commercial launch of BXCL501 in the U.S.

Increased non-cash stock-based compensation a result of the additional personnel and increased grant date fair values arising from higher market prices of the Company’s common stock.

The increase in professional research & project related costs, clinical trials expense and CMC costs reflect the acceleration of research and development activities is primarily related to our SERENITY I and II clinical trials as well increased costs associated with our TRANQUILITY and RELEASE clinical trials for BXCL501. These amounts were offset by reduced costs related to our BXCL501 Phase Ib schizophrenia trial and our BXCL701 pancreatic cancer trial.

Drug acquisition costs incurred during the nine months ended September 30, 2019 were related to certain payments triggered pursuant to our Amended and Restated Asset Contribution Agreement with our Parent as discussed in Note 4 to the financial statements included elsewhere in this Quarterly Report on Form 10-Q.

General and Administrative Expense

General and administrative expenses for the nine months ended September 30, 2020 and 2019 were $14,605 and $5,886, respectively. General and administrative expenses for the nine months ended September 30, 2020 and 2019 were comprised as follows: